AMAT - Embedded Expectations Analysis - 2019 06 05
Applied Materials, Inc. (AMAT:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings with a 10.9x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management has concerns about their ability to improve chip performance, growth opportunities, and operating costsSpecifically, management may lack confidence in their ability to deliver system-level improvements in chip power, performance and cost that meet AI and big data requirements, find new ways to connect chips, and expand into leading-edge memory. In addition, they may be exaggerating the outlook for the semiconductor industry, and the growth opportunities in IoT, big data, AI and OLED technologies. Moreover, they may lack confidence in their ability to maintain operating cost reductions, sustain share repurchases, and meet run rate and service business growth expectations
Applied Materials provides manufacturing equipment, services and software to the semiconductor, display and related industries. The company's segments are: Semiconductor Systems, which develops, manufactures and sells a range of manufacturing equipment used to fabricate semiconductor chips; Applied Global Services, which provides integrated solutions to support equipment and fab performance and productivity; and Display and Adjacent Markets, which is comprised of products for manufacturing liquid crystal displays, organic light-emitting diodes and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, and other consumer-oriented devices.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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