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 to get the future AMAT share price.
Any help will be appreciated.
Franz |
