Valuation Scorecard: Stock Rating B-Positive (3/7/24)-Applied Materials Inc (AMAT).

To achieve average annual stock market performance of 9.0% over the next 6 years, Applied Materials shares will need to reach $357. Upper quartile performance will require a $420 Applied Materials stock price by 2029. At the current price of $213, what is the market’s view of Applied Materials’ future operating performance?

Executive Summary

• Price Target Research identifies Applied Materials as having: high expected growth, above average financial strength, high profitability, and instability. A big positive influence on Applied Materials’ valuation is its superior Risk Profile.
• Average valuation, leading shareholder returns. Current valuation levels are average relative to the Applied Materials Peer Group. Recent market returns have significantly outperformed the Applied Materials Peer Group. Total shareholder returns expected to seriously beat the overall equity market. Based on current investor expectations, Applied Materials shares should reach a level of $404 by 2029 — an 12.0% per year total shareholder return. A 2029 stock price of $357 would reflect median performance and a price of $420 would be required to reach upper quartile performance.
• Applied Materials’ historical growth is very high. Historical growth has been very high relative to the Applied Materials Peer Group and forecasted growth is relatively very high. EPS Growth, Equity Growth, and Revenue Growth have been superior. These factors have buoyed market perceptions of Applied Materials. Applied Materials’ historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. Applied Materials’ consensus growth expectations are in line with past growth.
• Pretax ROA, Pretax Margin, and Asset Turnover are group leading. These factors have strengthened market perceptions of Applied Materials. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Risk Profile has been Applied Materials’ biggest valuation strength. Applied Materials’ risk profile is very favorable. Overall variability has been only average with only average revenue variability, only average E.P.S. variability, Financial Strength is relatively high and earnings’ expectations are relatively very high. The debt/capital ratio has declined.

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