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Politics : Formerly About Applied Materials
AMAT 301.88-1.0%3:59 PM EST
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To: Cary Salsberg who wrote (56481)11/29/2001 1:28:30 AM
From: brunn  Read Replies (1) of 70976
 
An optimistic scenario is $20B and $5.50 EPS in 2005. With low interest rates, lets give it a 35 multiple.

$20B and $5.5 EPS are probably a lot more certain than the 35 multiple. With slightly higher interest rates in 1995-96 AMAT peaked with a P/E of 16. Through the course of the 80's and 90's there has been a steady decrease in interest rates which has allowed AMAT to peak at higher and higher prices with each cycle. With short term rates at 2% the time has come to wonder if further interest rate decreases are likely or if we have reached the point where interest rates will start to rise again. If they do rise, we may be left with a multiple of 16 rather than 35 in 2005 and a peak price of AMAT of about 90. And if your scenario is indeed too optimistic (actually I find $5.5 EPS achievable), AMAT's EPS could be lower which would put even further pressure on the P/E. In the 1990's AMAT and other techs would always surprise on the upside because the P/E expansion would multiply the effect of strong earnings growth. It is possible that the 2000's could see the opposite effect of underperformance in stock performance in the face of earnings growth due to P/E contraction.
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