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Valuation Using the PE 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			-	$9,790	$11,529
Equity assumed value			-	$8,987	$13,244
NOPAT			$1,444	$440	$674
Net income			$1,377	$421	$711
Net nonoperating obligations (assets)			$(1,369)	$803	$(1,715)
Common shares outstanding			1,160.0	157.9	158.5

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

Round answers to two decimal places, when applicable.

	Price to Net income ratio
KLA Tencor	Answer
Lam Research	Answer

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

• Round equity intrinsic value to the nearest million.

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

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

Answer 1

Price per share = Company assumed value/No. of shares outstanding
Net Income per share = Net Income/No. of shares outstanding

Price to Net Income = Price per share/Net Income per share

KLA Price to Net income = 23.25
Lam Research Price to Net income = 16.22

Equity Assumed value = Company assumed value - net nonoperating obligations (assets)

Applied Materials
Equity Intrinsic value = $28,544 million
Equity Intrinsic value per share = Equity Intrinsic Value/No. of shares outstanding
= 28544/1160
Equity Intrinsic value per share = $24.61