Yield: ~ 2.34%
Applied Materials, Inc., provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic and related industries.
Estimated WACC for the firm today is 17.31% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year
|
FCF $Millions
|
2004
|
1437
|
2005
|
1047
|
2006
|
1756
|
2007
|
1945
|
2008
|
1423
|
2009
|
84
|
2010
|
1554
|
2011
|
2217
|
2012
|
1689
|
2013
|
426
|
Average Annual Growth FCF: ~ 180.5%
CAGR FCF: ~ -12.64%
Consensus Forecast Industry 5-Year Growth: ~ 17% per year
Consensus Forecast Company 5-Year Growth: ~ 8% per year
Internal Growth Rate: ~ -1.7%
Sustainable Growth Rate: ~ -2.81%
Scenario 1
Average FCF (2013-2011) is $1444 million
Average FCF (2013-2011) is $1444 million
- Start at $1444 million FCF
- Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 17.31%, give a present value for the entire firm (Debt + Equity) of $11629 million. If the firm's fair value of debt is estimated at $2100 million, then the fair value of the firm's equity could be $9529 million. $9529 million / 1200 million outstanding shares is approximately $8 per share and a 20% margin of safety is $6.40/share.
Year
|
FCF $Millions
|
0
|
1444
|
1
|
1560
|
2
|
1684
|
3
|
1819
|
4
|
1965
|
5
|
2122
|
Terminal Value
|
13235
|
The firm's future free cash flows, discounted at a WACC of 17.31%, give a present value for the entire firm (Debt + Equity) of $11629 million. If the firm's fair value of debt is estimated at $2100 million, then the fair value of the firm's equity could be $9529 million. $9529 million / 1200 million outstanding shares is approximately $8 per share and a 20% margin of safety is $6.40/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 12.00% per year, then 9.50% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year
|
FCF $Millions
|
0
|
1444
|
1
|
1617
|
2
|
1811
|
3
|
2029
|
4
|
2272
|
5
|
2545
|
Terminal Value
|
36480
|
- Present Value of the entire firm (Debt + Equity): $22715 million
- Value of Equity: $20615 million or $17/share
- 20% margin of safety is $13.60/share
Conclusion: Closing out position in AMAT for my Fantasy Portfolio today.
Sources
Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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