What’s Nvidia’s Fair Stock Price Estimate Based On Expected Fiscal 2020 Earnings?

by Trefis Team
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Nvidia’s (NASDAQ:NVDA) fair price estimate based on expected fiscal 2020 earnings is $175, according to Trefis estimates. This is over 15% below the current market price of around $210. Nvidia is an information technology company that designs and develops graphics processing units (GPUs), which are high performance processors that generate graphics on PCs. Its customers include PC and notebook original equipment manufacturers, such as Dell, HP, Toshiba, and Sony, who  pay Nvidia for its GPUs. In addition, the company also sells some of its high-end GPUs directly to consumers through retailers such as Best Buy.It competes with other GPU manufacturing companies, including AMD and Qualcomm. In this note we discuss our stock price valuation for Nvidia. You can look at our interactive dashboard analysis ~ Nvidia Valuation: Expensive Or Cheap? ~ for more details.

We arrive at the stock price estimate for Nvidia as:
Stock Price = (Total Revenue x Net Income Margin / Shares Outstanding) x P/E Multiple

#1. Estimating Nvidia’s Total Revenues:

Total Revenues have increased from $4.7 billion in fiscal 2015 to $11.7 billion in fiscal 2019, and could grow to north of $12.0 Billion by fiscal 2021.

Our Interactive Dashboard Analysis, Nvidia Revenues: How Does Nvidia Make Money?, Provides An In Depth View Of The Company’s Revenues.

The revenue decline in fiscal 2020 can primarily be attributed to lower PC and notebooks sales. The global PC shipments fell 5% in Q1 2019, before growing 1.5% and 1.1% in Q2 2019 and Q3 2019, respectively. This trend of lower revenues will likely be visible for Nvidia’s peers as well.

Comparing trends in Nvidia’s Total Revenues with that of its Peers

#2. Deriving Nvidia’s Adjusted Net Income:

Adjusted Net Income grew from $788 million in fiscal 2015 to $4.1 Billion in fiscal 2019, and we expect it to decline to around $3.4 billion in fiscal 2020.

This decline will likely be led by lower margins and lower revenues. Margins will be impacted by higher R&D, and SG&A expenses. In fact, R&D expenses were up 20% for the nine months period ending October 2019.

#3. Determining Nvidia’s Adjusted EPS:

Adjusted EPS has grown from $1.40 in fiscal 2015 to $6.64 in fiscal 2019, and we estimate it to be $5.50 in fiscal 2020.

EPS decline from fiscal 2019 can be attributed to lower Adjusted Net Income and lower Revenues, partly offset by lower Shares Outstanding.

#4. Estimating Nvidia’s Share Price:

Our Price Estimate of $175 For Nvidia’s Stock is based on our Detailed Valuation Model, and implies a 32x P/E Multiple on expected fiscal 2020 Adjusted EPS of $5.50.

Comparing Nvidia’s P/E Multiple Over The Last Three Years With That of Its Peers

P/E Multiples are based on Share Price at the end of September of each year, and reported (or expected) Adjusted Earnings for the full year.

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