Intrinsic value of Applied Materials - AMAT

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$44.09

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AMAT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 47.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.07
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  10,825
  12,135
  13,517
  14,970
  16,494
  18,087
  19,749
  21,482
  23,285
  25,161
  27,111
  29,138
  31,244
  33,433
  35,708
  38,074
  40,534
  43,094
  45,759
  48,534
  51,426
  54,442
  57,587
  60,869
  64,295
  67,874
  71,614
  75,523
  79,611
  83,887
  88,362
Variable operating expenses, $m
 
  7,314
  8,109
  8,945
  9,821
  10,738
  11,695
  12,692
  13,729
  14,809
  15,931
  16,765
  17,977
  19,236
  20,545
  21,906
  23,322
  24,795
  26,328
  27,925
  29,589
  31,324
  33,134
  35,022
  36,993
  39,053
  41,204
  43,453
  45,806
  48,266
  50,841
Fixed operating expenses, $m
 
  2,216
  2,271
  2,328
  2,386
  2,446
  2,507
  2,570
  2,634
  2,700
  2,768
  2,837
  2,908
  2,980
  3,055
  3,131
  3,210
  3,290
  3,372
  3,456
  3,543
  3,631
  3,722
  3,815
  3,910
  4,008
  4,108
  4,211
  4,316
  4,424
  4,535
Total operating expenses, $m
  8,673
  9,530
  10,380
  11,273
  12,207
  13,184
  14,202
  15,262
  16,363
  17,509
  18,699
  19,602
  20,885
  22,216
  23,600
  25,037
  26,532
  28,085
  29,700
  31,381
  33,132
  34,955
  36,856
  38,837
  40,903
  43,061
  45,312
  47,664
  50,122
  52,690
  55,376
Operating income, $m
  2,152
  2,605
  3,137
  3,697
  4,286
  4,902
  5,547
  6,220
  6,922
  7,653
  8,413
  9,536
  10,360
  11,216
  12,108
  13,036
  14,002
  15,009
  16,059
  17,153
  18,295
  19,486
  20,731
  22,032
  23,391
  24,813
  26,301
  27,858
  29,489
  31,197
  32,987
EBITDA, $m
  2,541
  3,077
  3,625
  4,202
  4,808
  5,444
  6,108
  6,801
  7,523
  8,276
  9,059
  9,874
  10,722
  11,604
  12,522
  13,477
  14,472
  15,509
  16,589
  17,715
  18,891
  20,117
  21,398
  22,737
  24,136
  25,600
  27,131
  28,733
  30,411
  32,169
  34,010
Interest expense (income), $m
  151
  119
  152
  186
  223
  261
  301
  343
  387
  432
  479
  528
  579
  632
  687
  744
  803
  865
  929
  996
  1,066
  1,139
  1,214
  1,293
  1,376
  1,462
  1,552
  1,646
  1,744
  1,847
  1,954
Earnings before tax, $m
  2,013
  2,486
  2,985
  3,511
  4,063
  4,641
  5,246
  5,877
  6,535
  7,221
  7,934
  9,008
  9,781
  10,585
  11,421
  12,292
  13,199
  14,144
  15,129
  16,157
  17,229
  18,348
  19,517
  20,738
  22,016
  23,351
  24,749
  26,213
  27,745
  29,350
  31,033
Tax expense, $m
  292
  671
  806
  948
  1,097
  1,253
  1,416
  1,587
  1,765
  1,950
  2,142
  2,432
  2,641
  2,858
  3,084
  3,319
  3,564
  3,819
  4,085
  4,362
  4,652
  4,954
  5,270
  5,599
  5,944
  6,305
  6,682
  7,077
  7,491
  7,925
  8,379
Net income, $m
  1,721
  1,815
  2,179
  2,563
  2,966
  3,388
  3,830
  4,290
  4,771
  5,271
  5,792
  6,576
  7,140
  7,727
  8,338
  8,973
  9,635
  10,325
  11,044
  11,794
  12,577
  13,394
  14,247
  15,139
  16,071
  17,047
  18,067
  19,135
  20,254
  21,426
  22,654

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,749
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  14,570
  12,135
  13,517
  14,970
  16,494
  18,087
  19,749
  21,482
  23,285
  25,161
  27,111
  29,138
  31,244
  33,433
  35,708
  38,074
  40,534
  43,094
  45,759
  48,534
  51,426
  54,442
  57,587
  60,869
  64,295
  67,874
  71,614
  75,523
  79,611
  83,887
  88,362
Adjusted assets (=assets-cash), $m
  10,821
  12,135
  13,517
  14,970
  16,494
  18,087
  19,749
  21,482
  23,285
  25,161
  27,111
  29,138
  31,244
  33,433
  35,708
  38,074
  40,534
  43,094
  45,759
  48,534
  51,426
  54,442
  57,587
  60,869
  64,295
  67,874
  71,614
  75,523
  79,611
  83,887
  88,362
Revenue / Adjusted assets
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
Average production assets, $m
  1,583
  1,772
  1,973
  2,186
  2,408
  2,641
  2,883
  3,136
  3,400
  3,674
  3,958
  4,254
  4,562
  4,881
  5,213
  5,559
  5,918
  6,292
  6,681
  7,086
  7,508
  7,948
  8,408
  8,887
  9,387
  9,910
  10,456
  11,026
  11,623
  12,248
  12,901
Working capital, $m
  4,721
  1,311
  1,460
  1,617
  1,781
  1,953
  2,133
  2,320
  2,515
  2,717
  2,928
  3,147
  3,374
  3,611
  3,856
  4,112
  4,378
  4,654
  4,942
  5,242
  5,554
  5,880
  6,219
  6,574
  6,944
  7,330
  7,734
  8,156
  8,598
  9,060
  9,543
Total debt, $m
  3,325
  3,993
  4,907
  5,867
  6,874
  7,927
  9,026
  10,171
  11,364
  12,604
  13,893
  15,232
  16,625
  18,071
  19,575
  21,139
  22,765
  24,457
  26,219
  28,053
  29,965
  31,958
  34,037
  36,206
  38,471
  40,837
  43,309
  45,893
  48,595
  51,421
  54,379
Total liabilities, $m
  7,353
  8,021
  8,935
  9,895
  10,902
  11,955
  13,054
  14,199
  15,392
  16,632
  17,921
  19,260
  20,653
  22,099
  23,603
  25,167
  26,793
  28,485
  30,247
  32,081
  33,993
  35,986
  38,065
  40,234
  42,499
  44,865
  47,337
  49,921
  52,623
  55,449
  58,407
Total equity, $m
  7,217
  4,114
  4,582
  5,075
  5,591
  6,131
  6,695
  7,282
  7,894
  8,530
  9,191
  9,878
  10,592
  11,334
  12,105
  12,907
  13,741
  14,609
  15,512
  16,453
  17,434
  18,456
  19,522
  20,635
  21,796
  23,009
  24,277
  25,602
  26,988
  28,438
  29,955
Total liabilities and equity, $m
  14,570
  12,135
  13,517
  14,970
  16,493
  18,086
  19,749
  21,481
  23,286
  25,162
  27,112
  29,138
  31,245
  33,433
  35,708
  38,074
  40,534
  43,094
  45,759
  48,534
  51,427
  54,442
  57,587
  60,869
  64,295
  67,874
  71,614
  75,523
  79,611
  83,887
  88,362
Debt-to-equity ratio
  0.461
  0.970
  1.070
  1.160
  1.230
  1.290
  1.350
  1.400
  1.440
  1.480
  1.510
  1.540
  1.570
  1.590
  1.620
  1.640
  1.660
  1.670
  1.690
  1.710
  1.720
  1.730
  1.740
  1.750
  1.770
  1.770
  1.780
  1.790
  1.800
  1.810
  1.820
Adjusted equity ratio
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339
  0.339

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,721
  1,815
  2,179
  2,563
  2,966
  3,388
  3,830
  4,290
  4,771
  5,271
  5,792
  6,576
  7,140
  7,727
  8,338
  8,973
  9,635
  10,325
  11,044
  11,794
  12,577
  13,394
  14,247
  15,139
  16,071
  17,047
  18,067
  19,135
  20,254
  21,426
  22,654
Depreciation, amort., depletion, $m
  389
  472
  488
  505
  523
  541
  560
  581
  601
  623
  646
  338
  362
  387
  414
  441
  470
  499
  530
  562
  596
  631
  667
  705
  745
  786
  830
  875
  922
  972
  1,024
Funds from operations, $m
  2,585
  2,287
  2,667
  3,068
  3,488
  3,929
  4,390
  4,871
  5,372
  5,894
  6,438
  6,914
  7,502
  8,114
  8,751
  9,414
  10,105
  10,825
  11,575
  12,357
  13,173
  14,025
  14,915
  15,844
  16,816
  17,833
  18,897
  20,010
  21,176
  22,398
  23,678
Change in working capital, $m
  119
  141
  149
  157
  165
  172
  180
  187
  195
  203
  211
  219
  227
  236
  246
  255
  266
  276
  288
  300
  312
  326
  340
  354
  370
  387
  404
  422
  441
  462
  483
Cash from operations, $m
  2,466
  2,075
  2,518
  2,911
  3,324
  3,757
  4,210
  4,684
  5,177
  5,692
  6,227
  6,695
  7,275
  7,878
  8,506
  9,159
  9,839
  10,548
  11,287
  12,057
  12,860
  13,699
  14,575
  15,490
  16,446
  17,447
  18,493
  19,588
  20,735
  21,936
  23,194
Maintenance CAPEX, $m
  0
  -126
  -141
  -157
  -173
  -191
  -210
  -229
  -249
  -270
  -292
  -314
  -338
  -362
  -387
  -414
  -441
  -470
  -499
  -530
  -562
  -596
  -631
  -667
  -705
  -745
  -786
  -830
  -875
  -922
  -972
New CAPEX, $m
  -253
  -189
  -202
  -212
  -222
  -233
  -243
  -253
  -263
  -274
  -285
  -296
  -307
  -320
  -332
  -345
  -359
  -374
  -389
  -405
  -422
  -440
  -459
  -479
  -500
  -523
  -546
  -571
  -597
  -624
  -653
Cash from investing activities, $m
  -425
  -315
  -343
  -369
  -395
  -424
  -453
  -482
  -512
  -544
  -577
  -610
  -645
  -682
  -719
  -759
  -800
  -844
  -888
  -935
  -984
  -1,036
  -1,090
  -1,146
  -1,205
  -1,268
  -1,332
  -1,401
  -1,472
  -1,546
  -1,625
Free cash flow, $m
  2,041
  1,761
  2,176
  2,542
  2,928
  3,334
  3,758
  4,202
  4,665
  5,148
  5,651
  6,085
  6,630
  7,196
  7,786
  8,400
  9,039
  9,705
  10,398
  11,122
  11,876
  12,663
  13,485
  14,343
  15,241
  16,179
  17,160
  18,188
  19,263
  20,389
  21,569
Issuance/(repayment) of debt, $m
  -1,207
  868
  914
  961
  1,007
  1,053
  1,099
  1,145
  1,192
  1,240
  1,289
  1,340
  1,392
  1,447
  1,504
  1,564
  1,626
  1,692
  1,762
  1,835
  1,912
  1,993
  2,079
  2,169
  2,265
  2,366
  2,472
  2,584
  2,702
  2,827
  2,958
Issuance/(repurchase) of shares, $m
  -1,804
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2,988
  868
  914
  961
  1,007
  1,053
  1,099
  1,145
  1,192
  1,240
  1,289
  1,340
  1,392
  1,447
  1,504
  1,564
  1,626
  1,692
  1,762
  1,835
  1,912
  1,993
  2,079
  2,169
  2,265
  2,366
  2,472
  2,584
  2,702
  2,827
  2,958
Total cash flow (excl. dividends), $m
  -947
  2,629
  3,089
  3,503
  3,935
  4,386
  4,857
  5,347
  5,857
  6,388
  6,940
  7,425
  8,022
  8,643
  9,290
  9,963
  10,665
  11,397
  12,160
  12,956
  13,788
  14,656
  15,564
  16,513
  17,506
  18,545
  19,632
  20,772
  21,965
  23,216
  24,527
Retained Cash Flow (-), $m
  396
  -446
  -469
  -493
  -516
  -540
  -564
  -587
  -611
  -636
  -661
  -687
  -714
  -742
  -771
  -802
  -834
  -868
  -903
  -941
  -980
  -1,022
  -1,066
  -1,113
  -1,162
  -1,213
  -1,268
  -1,325
  -1,386
  -1,450
  -1,517
Prev. year cash balance distribution, $m
 
  3,549
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,732
  2,621
  3,010
  3,419
  3,846
  4,294
  4,760
  5,246
  5,752
  6,279
  6,737
  7,308
  7,901
  8,519
  9,162
  9,831
  10,529
  11,256
  12,015
  12,807
  13,634
  14,498
  15,400
  16,344
  17,331
  18,365
  19,446
  20,579
  21,766
  23,010
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,496
  2,399
  2,619
  2,815
  2,981
  3,116
  3,216
  3,279
  3,304
  3,292
  3,200
  3,118
  3,004
  2,860
  2,690
  2,498
  2,291
  2,073
  1,850
  1,627
  1,410
  1,203
  1,009
  832
  674
  536
  417
  318
  238
  173
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells a range of manufacturing equipment used to fabricate semiconductor chips or integrated circuits. It offers products and technologies for transistor and interconnect fabrication, including epitaxy, ion implantation, oxidation and nitridation, rapid thermal processing, chemical vapor deposition, physical vapor deposition, chemical mechanical planarization, and electrochemical deposition; patterning, selective removal, and packaging products and systems that enable the transfer of patterns onto device structures; and metrology, inspection, and review systems for front- and back-end-of-line applications. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes, and other display technologies for TVs, personal computers, tablets, smart phones, and other consumer-oriented devices, as well as equipment for flexible substrates. The company serves manufacturers of semiconductor wafers and chips, liquid crystal and other displays, and other electronic devices. Applied Materials, Inc. was founded in 1967 and is headquartered in Santa Clara, California.

FINANCIAL RATIOS  of  Applied Materials (AMAT)

Valuation Ratios
P/E Ratio 29
Price to Sales 4.6
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 20.2
Price to Free Cash Flow 22.5
Growth Rates
Sales Growth Rate 12.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 17.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.1%
Financial Strength
Quick Ratio 19
Current Ratio 0
LT Debt to Equity 43.3%
Total Debt to Equity 46.1%
Interest Coverage 14
Management Effectiveness
Return On Assets 12.4%
Ret/ On Assets - 3 Yr. Avg. 10.6%
Return On Total Capital 15.2%
Ret/ On T. Cap. - 3 Yr. Avg. 13%
Return On Equity 23.2%
Return On Equity - 3 Yr. Avg. 18.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 41.7%
Gross Margin - 3 Yr. Avg. 41.6%
EBITDA Margin 23.6%
EBITDA Margin - 3 Yr. Avg. 22%
Operating Margin 19.9%
Oper. Margin - 3 Yr. Avg. 18.1%
Pre-Tax Margin 18.6%
Pre-Tax Margin - 3 Yr. Avg. 17%
Net Profit Margin 15.9%
Net Profit Margin - 3 Yr. Avg. 14%
Effective Tax Rate 14.5%
Eff/ Tax Rate - 3 Yr. Avg. 18.1%
Payout Ratio 25.8%

AMAT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AMAT stock intrinsic value calculation we used $10825 million for the last fiscal year's total revenue generated by Applied Materials. The default revenue input number comes from 2016 income statement of Applied Materials. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AMAT stock valuation model: a) initial revenue growth rate of 12.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AMAT is calculated based on our internal credit rating of Applied Materials, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Applied Materials.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AMAT stock the variable cost ratio is equal to 60.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2162 million in the base year in the intrinsic value calculation for AMAT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for Applied Materials.

Corporate tax rate of 27% is the nominal tax rate for Applied Materials. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AMAT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AMAT are equal to 14.6%.

Life of production assets of 12.6 years is the average useful life of capital assets used in Applied Materials operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AMAT is equal to 10.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $7217 million for Applied Materials - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1073.54 million for Applied Materials is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Applied Materials at the current share price and the inputted number of shares is $47.3 billion.


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Stock chart of AMAT Financial statements of AMAT Annual reports of AMAT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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