AMAT – Market expectations are for Uniform ROA to decline, and management may have concerns about profitability, supply chain constraints, and digital transformation
- Applied Materials (AMAT) currently trades below corporate but near historical averages relative to Uniform earnings, with a 13.9x Uniform P/E (Fwd. V/E’).
- At these levels, markets are pricing in expectations for Uniform ROA to decline to 21%, accompanied by 7% Uniform asset growth.
- Meanwhile, analysts expect Uniform ROA to improve to 38% by 2023, accompanied by 9% Uniform asset growth.
- If sustained going forward, these levels would imply a stock price closer to $254, representing significant potential equity upside for the firm. That said, the firm is unlikely to sustain peak cycle profitability going forward.
- Moreover, the firm’s most recent earnings call suggests management may have concerns about profitability, supply chain constraints, and digital transformation.