Applied Materials Inc Valuation – August 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 Stocks for Using A Benjamin Graham Value Investing Strategy – August 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 semiconductor, display, solar photovoltaic (PV) and related industries across the world. The Company operates in four segments: Silicon Systems, Applied Global Services, Display, and Energy and Environmental Solutions. Its manufacturing activities consist of assembly, test and integration of various commercial parts, components and subassemblies that are used to manufacture systems. Its products include Centura RP Epi, VIISta Systems, Vantage Systems, AKT PECVD Systems, AKT Aristo and PiVot Systems. It caters to customers, including manufacturers of semiconductor chips, liquid crystal and other displays, solar PV cells and other electronic devices. It has implemented a distributed manufacturing model under which manufacturing and supply chain activities are conducted in various countries, including Germany, Israel, Italy, Singapore, Taiwan, the United States and other countries in Asia.

AMAT Chart

AMAT data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, 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 – August 2016

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 $32,744,008,304 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.50 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 117.96% Pass
6. Moderate PEmg Ratio PEmg < 20 28.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.80 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 2.50 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.75 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 August 2016

EPSmg $1.06
MG Growth Estimate 12.68%
MG Value $35.77
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $15.32
MG Value based on 0% Growth $8.98
Market Implied Growth Rate 9.93%
Current Price $29.97
% of Intrinsic Value 83.78%

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 $1.06 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 9.93% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Applied Materials, Inc. revealed the company was trading above its Graham Number of $15.25. The company pays a dividend of $0.4 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 28.36, which was above the industry average of 22.64. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.47.

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

Stage 3: Information for Further Research

AMAT charts August 2016

Net Current Asset Value (NCAV) $0.47
Graham Number $15.25
PEmg 28.36
Current Ratio 2.50
PB Ratio 4.80
Current Dividend $0.40
Dividend Yield 1.33%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 7/1/2016
Total Current Assets $7,399,000,000
Total Current Liabilities $2,964,000,000
Long-Term Debt $3,343,000,000
Total Assets $13,699,000,000
Intangible Assets $3,926,000,000
Total Liabilities $6,880,000,000
Shares Outstanding (Diluted Average) 1,093,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.65
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 $1.06
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 – February 2016 $AMAT
Applied Materials Inc Valuation – November 2015 Update $AMAT
Applied Materials Inc Valuation – November 2015 Update $AMAT
Applied Materials Inc. Analysis – August 2015 Update $AMAT
47 Companies in the Spotlight This Week – 5/16/15

Other ModernGraham posts about related companies

Skyworks Solutions Inc Valuation – August 2016 $SWKS
Garmin Limited Valuation – August 2016 $GRMN
Analog Devices Inc Valuation – August 2016 $ADI
Amphenol Corporation Valuation – August 2016 $APH
Agilent Technologies Inc Valuation – August 2016 $A
Texas Instruments Inc Valuation – August 2016 $TXN
Xilinx Inc Valuation – August 2016 $XLNX
Western Digital Corporation Valuation – August 2016 $WDC
Apple Inc Valuation – August 2016 $AAPL
Ametek Inc Valuation – August 2016 $AME


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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.