DCF Studio

    AMAT · NMS · Technology

    Applied Materials, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 96.68

    Market price

    USD 444.57

    Implied upside

    -78.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 4.9% of revenue against depreciation of 1.7%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 39.4x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 96.68-78.3%
    Exit multiple
    USD 189.46-57.4%
    Market price
    USD 444.57

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn4bn8bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 29.3bnUSD 30.2bnUSD 31.2bnUSD 32.2bnUSD 33.3bn+3.2%
    EBITUSD 8.6bnUSD 8.9bnUSD 9.2bnUSD 9.5bnUSD 9.8bn+3.2%
    NOPATUSD 7.5bnUSD 7.7bnUSD 8.0bnUSD 8.3bnUSD 8.5bn+3.2%
    Add depreciation & amortisationUSD 486.1mUSD 501.9mUSD 518.1mUSD 534.8mUSD 552.1m+3.2%
    Less capital expenditureUSD -1.4bnUSD -1.5bnUSD -1.5bnUSD -1.6bnUSD -1.6bn+3.2%
    Less increase in working capitalUSD 917.3mUSD 946.9mUSD 977.5mUSD 1.0bnUSD 1.0bn-3.2%
    Free cashflow to firmUSD 7.5bnUSD 7.7bnUSD 8.0bnUSD 8.2bnUSD 8.5bn+3.2%
    Discount factor0.94270.83770.74440.66150.5878-
    Present valueUSD 7.0bnUSD 6.5bnUSD 5.9bnUSD 5.4bnUSD 5.0bn-8.3%
    Present Value Of The ForecastUSD 29.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.400Reported 1.597, pulled toward 1.0 (Blume)
    Cost of equity12.70%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 352.8bn98.0% of capital
    Total debtUSD 7.0bn2.0% of capital, book value as a proxy
    Tax rate13.0%Effective, capped at statutory
    WACC12.53%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 96.68

    61% of EV

    Forecast FCFF, final year
    USD 8.5bn
    Capex at depreciation, working capital in reinvestment
    USD 8.5bn
    Less reinvestment at g/ROIC (8.7% of NOPAT)
    USD -738.6m
    Capitalised
    USD 7.8bn
    ROIC (reported)
    28.8%
    Terminal value, undiscounted
    USD 79.5bn
    Terminal value, discounted
    USD 46.7bn
    Enterprise value
    USD 76.6bn
    Less net debt
    USD -1.5bn
    Equity value
    USD 78.1bn

    Exit at 20.0x EBITDA

    Value per shareUSD 189.46

    80% of EV

    Terminal value, undiscounted
    USD 207.0bn
    Terminal value, discounted
    USD 121.7bn
    Enterprise value
    USD 151.6bn
    Less net debt
    USD -1.5bn
    Equity value
    USD 153.1bn

    Spread between methods: 65%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    10.53%112.01115.18118.74122.75127.31
    11.53%101.51103.88106.49109.41112.67
    12.53%92.9094.7196.6898.85101.25
    13.53%85.7387.1288.6490.2892.08
    14.53%79.6580.7481.9283.1984.57

    Outlined: this model. Green text: above today's price of 444.57. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.2%39.1%+35.9pp
    Discount rate12.5%4.5%-8.0pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.