Applied Materials Inc Valuation – February 2016 $AMAT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Applied Materials Inc (AMAT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Applied Materials, Inc. (Applied) provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic (PV) and related industries. Applied operates in four segments: Silicon Systems Group, Applied Global Services, Display, and Energy and Environmental Solutions. The Silicon Systems Group segment develops, manufactures and sells manufacturing equipment used to fabricate semiconductor chips. The Applied Global Services segment encompasses services, products and integrated solutions to optimize equipment and fab performance and productivity. The Display Segment includes products for manufacturing liquid crystal displays, organic light-emitting diodes and other display technologies for televisions, personal computers, tablets, smartphones and other devices. The Energy and Environmental Solutions segment includes systems for manufacturing wafer-based crystalline silicon cells and modules.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of AMAT

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,760,932,325 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.00 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 86.83% Pass
6. Moderate PEmg Ratio PEmg < 20 21.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.04 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.73 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AMAT value chart February 2016

EPSmg $0.88
MG Growth Estimate 8.14%
MG Value $21.88
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $12.81
MG Value based on 0% Growth $7.51
Market Implied Growth Rate 6.44%
Current Price $18.89
% of Intrinsic Value 86.32%

Applied Materials, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.57 in 2012 to an estimated $0.88 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.44% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Applied Materials, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

AMAT charts February 2016

Net Current Asset Value (NCAV) $0.65
Graham Number $12.57
PEmg 21.38
Current Ratio 3.00
PB Ratio 3.04
Dividend Yield 2.12%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information Jan2016
Total Current Assets $6,910,000,000
Total Current Liabilities $2,307,000,000
Long-Term Debt $3,343,000,000
Total Assets $13,326,000,000
Intangible Assets $4,016,000,000
Total Liabilities $6,158,000,000
Shares Outstanding (Diluted Average) 1,154,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.13
Oct2015 $1.12
Oct2014 $0.87
Oct2013 $0.21
Oct2012 $0.09
Oct2011 $1.45
Oct2010 $0.70
Oct2009 -$0.23
Oct2008 $0.70
Oct2007 $1.20
Oct2006 $0.97
Oct2005 $0.73
Oct2004 $0.78
Oct2003 -$0.09
Oct2002 $0.16
Oct2001 $0.30
Oct2000 $1.20
Oct1999 $0.46
Oct1998 $0.15
Oct1997 $0.33
Oct1996 $0.41

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.88
Oct2015 $0.76
Oct2014 $0.60
Oct2013 $0.46
Oct2012 $0.57
Oct2011 $0.80
Oct2010 $0.54
Oct2009 $0.53
Oct2008 $0.90
Oct2007 $0.90
Oct2006 $0.67
Oct2005 $0.47
Oct2004 $0.39
Oct2003 $0.26
Oct2002 $0.44
Oct2001 $0.55
Oct2000 $0.62

Recommended Reading:

Other ModernGraham posts about the company

Applied Materials Inc Valuation – November 2015 Update $AMAT
Applied Materials Inc. Analysis – August 2015 Update $AMAT
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Applied Materials Inc. Quarterly Valuation – May 2015 $AMAT
58 Companies in the Spotlight This Week – 1/31/15

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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