In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

Applied Materials Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 17.89%
0¹	FCFF₀	7,667
1	FCFF₁	9,436	= 7,667 × (1 + 23.07%)	8,004
2	FCFF₂	11,367	= 9,436 × (1 + 20.47%)	8,180
3	FCFF₃	13,399	= 11,367 × (1 + 17.88%)	8,179
4	FCFF₄	15,447	= 13,399 × (1 + 15.28%)	7,998
5	FCFF₅	17,406	= 15,447 × (1 + 12.68%)	7,645
5	Terminal value (TV₅)	377,047	= 17,406 × (1 + 12.68%) ÷ (17.89% – 12.68%)	165,607
Intrinsic value of Applied Materials Inc. capital				205,612
Less: Debt and finance lease liabilities (fair value)				4,902
Intrinsic value of Applied Materials Inc. common stock				200,710

Intrinsic value of Applied Materials Inc. common stock (per share)				$241.56
Current share price				$193.99

Based on: 10-K (reporting date: 2023-10-29).

¹ See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Applied Materials Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	161,186	0.97	18.33%
Debt and finance lease liabilities (fair value)	4,902	0.03	3.28%	= 3.80% × (1 – 13.70%)

Based on: 10-K (reporting date: 2023-10-29).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 830,897,356 × $193.99
= $161,185,778,090.44

Debt and finance lease liabilities (fair value). See details »

² Required rate of return on equity is estimated by using CAPM. See details »

Required rate of return on debt. See details »

Required rate of return on debt is after tax.

Estimated (average) effective income tax rate
= (11.10% + 14.10% + 13.00% + 13.10% + 17.20% + 5.70%) ÷ 6
= 13.70%

WACC = 17.89%

FCFF growth rate (g) implied by PRAT model

Applied Materials Inc., PRAT model

	Average	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Oct 25, 2020	Oct 27, 2019	Oct 28, 2018
Selected Financial Data (US$ in millions)
Interest expense		238)	228)	236)	240)	237)	234)
Net income		6,856)	6,525)	5,888)	3,619)	2,706)	3,313)

Effective income tax rate (EITR)¹		11.10%	14.10%	13.00%	13.10%	17.20%	5.70%

Interest expense, after tax²		212)	196)	205)	209)	196)	221)
Add: Dividends declared		1,022)	879)	851)	796)	770)	694)
Interest expense (after tax) and dividends		1,234)	1,075)	1,056)	1,005)	966)	915)

EBIT(1 – EITR)³		7,068)	6,721)	6,093)	3,828)	2,902)	3,534)

Short-term debt		100)	—)	—)	—)	—)	—)
Current portion of long-term debt		—)	—)	—)	—)	600)	—)
Finance lease liabilities, current		102)	—)	—)	—)	—)	—)
Long-term debt, net of current portion		5,461)	5,457)	5,452)	5,448)	4,713)	5,309)
Stockholders’ equity		16,349)	12,194)	12,247)	10,578)	8,214)	6,839)
Total capital		22,012)	17,651)	17,699)	16,026)	13,527)	12,148)
Financial Ratios
Retention rate (RR)⁴		0.83	0.84	0.83	0.74	0.67	0.74
Return on invested capital (ROIC)⁵		32.11%	38.08%	34.43%	23.88%	21.46%	29.09%
Averages
RR	0.77
ROIC	29.84%

FCFF growth rate (g)⁶	23.07%

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-25), 10-K (reporting date: 2019-10-27), 10-K (reporting date: 2018-10-28).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 238 × (1 – 11.10%)
= 212

³ EBIT(1 – EITR) = Net income + Interest expense, after tax
= 6,856 + 212
= 7,068

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [7,068 – 1,234] ÷ 7,068
= 0.83

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 7,068 ÷ 22,012
= 32.11%

⁶ g = RR × ROIC
= 0.77 × 29.84%
= 23.07%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (166,088 × 17.89% – 7,667) ÷ (166,088 + 7,667)
= 12.68%

where:

Total capital, fair value₀ = current fair value of Applied Materials Inc. debt and equity (US$ in millions)
FCFF₀ = the last year Applied Materials Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Applied Materials Inc. capital

FCFF growth rate (g) forecast

Applied Materials Inc., H-model

Year	Value	g_t
1	g₁	23.07%
2	g₂	20.47%
3	g₃	17.88%
4	g₄	15.28%
5 and thereafter	g₅	12.68%

where:
g₁ is implied by PRAT model
g₅ is implied by single-stage model
g₂, g₃ and g₄ are calculated using linear interpoltion between g₁ and g₅

Calculations

g₂ = g₁ + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 23.07% + (12.68% – 23.07%) × (2 – 1) ÷ (5 – 1)
= 20.47%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 23.07% + (12.68% – 23.07%) × (3 – 1) ÷ (5 – 1)
= 17.88%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 23.07% + (12.68% – 23.07%) × (4 – 1) ÷ (5 – 1)
= 15.28%

Applied Materials Inc. (NASDAQ:AMAT)

Present Value of Free Cash Flow to the Firm (FCFF)

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

FCFF growth rate (g) implied by single-stage model

FCFF growth rate (g) forecast