Applied Materials (NASDAQ: AMAT) to Face External Threats with Strong Track Record

Between Evergrande and Omicron there will be plenty of 2021 highlights, but we can expect semiconductors to rank among those.

From geopolitical issues to supply chain issues, the semiconductor situation has forced the expansion of all major producers and propelled industry leaders as Applied Materials, Inc.(NASDAQ: AMAT) to new heights.

Overall, the stock is looking to end the year with a 90% gain. Despite this race, he still has a relatively average valuation at P / E 20.

See our latest analysis for applied materials

Annual results 2021

  • EPS: US $ 6.47 (compared to US $ 3.95 for fiscal 2020).
  • Income: US $ 23.1 billion (up 34% from fiscal 2020).
  • Net revenue: US $ 5.89 billion (up 63% from fiscal 2020).
  • Profit margin: 26% (compared to 21% in fiscal year 2020). The increase in margin is explained by the increase in revenues.

Revenue missed analysts’ estimates by 1.1%. Earnings per share (EPS) were mostly in line with analysts’ estimates. Earnings per share (EPS) were mostly in line with analysts’ estimates.

  • Over the next year, revenues are expected to increase by 15%, compared to an expected growth of 18% for the industry in the United States.
  • Over the past 3 years, on average, earnings per share have grown by 25% per year, but its stock price has increased by 71% per year, which means it is significantly ahead of the growth in profits.

Meanwhile, the materials applied signed a 5-year extension research and development agreement with the Institute of Microelectronics, a research institute of the Singapore Science Agency. The US $ 210 million agreement focuses on breakthroughs in heterogeneous integration and advanced packaging for semiconductor innovation.

While ties with Singapore appear to be stronger, one of the few headwinds is increasing restrictions on Chinese chipmakers. Further restrictions would certainly impose export limits and hurt revenues in the market where AMAT is a strong leader.

Chinese turnover by equipment manufacturer; Source: The information network

Review of balance sheet

As you can see below, Applied Materials had $ 5.45 billion in debt in October 2021, which is roughly the same as the year before. You can click on the graph for more details.

But it also has $ 5.46 billion in cash to make up for that, which means it has $ 7.00 million in net cash.

debt-equity-historical-analysis
NasdaqGS: history of debt on equity of AMAT December 28, 2021

How strong is Applied Materials’ balance sheet?

The latest balance sheet data shows Applied Materials had liabilities of US $ 6.34 billion due within one year and liabilities of US $ 7.23 billion due after that. In compensation for these obligations, it had cash of US $ 5.46 billion as well as receivables valued at US $ 5.15 billion due within 12 months. Its liabilities therefore total $ 2.97 billion more than the combination of its cash and short-term receivables.

Considering that publicly traded Applied Materials has a market capitalization of US $ 144.6 billion, it seems unlikely that this level of liabilities is a significant threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. Despite its notable liabilities, Applied Materials has a net cash flow, so it’s fair to say that it doesn’t have a lot of debt.

On top of that, Applied Materials has increased its EBIT by 62% over the past twelve months, and this growth will make it easier to process its debt. The balance sheet is the obvious starting point for analyzing debt levels. But it is future profits, more than anything, that will determine Applied Materials’ ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free Analyst Profit Forecast report interesting.

Finally, a business needs free cash flow to pay off debts. Over the past three years, Applied Materials has recorded free cash flow of 73% of its EBIT, which is normal given that free cash flow excludes interest and taxes. This free cash flow puts the business in a good position to repay debt if necessary.

In summary

While it always makes sense to look at a company’s total liabilities, it’s very reassuring that Applied Materials has $ 7.00 million in net cash. And we liked the appearance of the 62% year-on-year EBIT growth from last year. We therefore do not believe that Applied Materials’ use of debt is risky.

The most significant risk to the business currently lies in the external environment, not the internal one. The US administration has changed, but trade relations with China remain on ice. Meanwhile, China has made significant regulatory changes in the domestic market, pushing it 14% into the red for the year.

While the balance sheet is the area you need to focus on when analyzing debt, Ultimately, any business can contain off-balance sheet risks. To this end, you need to know the 1 warning sign we spotted with Applied Materials.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St do not have any position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.

Shirlene J. Manley