I have a simple analysis question that I hope somebody can help me with.
I frequently hear things like the following:
On August 2, 2000 SSB (Solomon Smith Barney) said the following:
As a result, we are lowering our price targets as follows:
AMAT to $95 from $140 (25x our CY01 EPS estimate of $3.83)
My question is, where do they get the 25x figure.
The first thing I do is go to Microsoft Investor and get a chart of historical earnings for AMAT.
Then I add a column, called % Gain, to show me the Y-Y % growth.
I also add a column, called X, to see the multiplying factor that gets us from Y-Y.
AMAT
Revenue - Quarterly Results ($ Millions)
FY (10/00) X % Gain FY (10/99) X % Gain FY (10/98)
1st Qtr 1,667.00 2.25 55% 742.5 0.57 -43% 1,307.70
2nd Qtr 2,190.00 1.96 49% 1,117.60 0.95 -5% 1,176.30
3rd Qtr NA 1,433.50 1.62 62% 884.5
4th Qtr NA 1,565.50 2.33 133% 673.2
Total 3,857.00 4,859.10 1.20 20% 4,041.70
Earnings Per Share - Quarterly Results
FY (10/00) X % Gain FY (10/99) X % Gain FY (10/98)
1st Qtr $0.40 5.71 83% $0.07 0.23 -77% $0.30
2nd Qtr $0.54 3.00 67% $0.18 0.95 -5% $0.19
3rd Qtr NA $0.31 4.43 343% $0.07
4th Qtr NA $0.40 -1.60 -260% ($0.25)
Total $0.94 0.98 $0.96 3.10 210% $0.31
If you look at AMAT’s current year earnings, they would be $1.88 for the year
if they just remained the same and did not grow. So it is reasonable
to assume a $3.83 annual earnings for AMAT for next year.
I am now trying to see how they came up with the factor
of 25 to multiply the annual earnings by.
I need some help. How do they come up with that number?
Any help will be appreciated.
Franz |
