Question

In: Finance

Valuation Using Price-to-NOPAT Multiple The following table provides summary data for Applied Materials Inc. and its...

Valuation Using Price-to-NOPAT Multiple

The following table provides summary data for Applied Materials Inc. and its competitors, KLA Tencor Corporation and Lam Research Corporation.

(in millions)

Applied Materials KLA Tencor Lam Research
Company assumed value - $9,791 $11,530
Equity assumed value - $8,988 $13,245
NOPAT $1,444 $440 $674
Net income $1,377 $366 $656
Net nonoperating obligations (assets) $(1,369) $803 $(1,715)
Common shares outstanding 1,160.0 157.9 158.5

a. Compute the price to NOPAT ratio for both KLA Tencor Corporation and Lam Research Corporation.

Round answers to two decimal places, when applicable.

Price to NOPAT ratio
KLA Tencor Answer
Lam Research Answer

b. Use KLA Tencor Corporation and Lam Research Corporation as comparables, along with the price to NOPAT ratios from part a, and then estimate for Applied Materials its company intrinsic value, its equity intrinsic value, and its equity intrinsic value per share.

  • Round company and equity intrinsic values to the nearest million.

  • Round equity intrinsic value per share to two decimal places.

KLA Tencor Corporation
Company intrinsic value Answer million
Equity intrinsic value Answer million
Equity intrinsic value per share Answer

Solutions

Expert Solution

a. Price to NOPAT ratio = Company assumed value / NOPAT

For KLA TENCOR :

Company assumed value = $9791 million

NOPAT = $440 million

Price to NOPAT = 9791/440 = 22.25

For LAM RESEARCH :

Company assumed value = $11530 million

NOPAT = $674 million

Price to NOPAT = 11530/674 = 17.11

b. We consider both the companies as equally comparable to Applied Materials Inc. so we take simple average of their price to NOPAT ratios to calculate the same for Applied materials Inc.

So price to NOPAT ratio for Applied Materials Inc. = (22.25 + 17.11)/2 = 19.68

Company intrinsic value = NOPAT * price to NOPAT ratio of market = 1444*19.68 = $28417.92 million

Company's equity intrinsic value = Company assumed value - Net nonoperating obligations = $28417.92mn - (-$1369mn)

  = $28417.92 mn +$1369 mn = $29786.92 million

Intrinsic value per share = Company's intrinsic equity value / number of shares = $29786.92 million / 1160 million  

= $25.68


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