|Shares Out. (in M):||1,067||P/E||14.5||12|
|Market Cap (in $M):||50,100||P/FCF||0||0|
|Net Debt (in $M):||-1,928||EBIT||0||0|
|Subject||Re: Re: thanks for the writeup|
|Entry||08/21/2018 12:52 PM|
any thoughts on the quarter krusty?
past results looked fine but perhaps the cyclical turn is here now? Granted, I'm looking short-term, but wondering what could move it much higher (beyond the pull of a happy market). I'm also wondering why they ramped up the buyback - macro looks fine but maybe a better buying opportunties in the future?
|Subject||Re: Re: Re: Re: thanks for the writeup|
|Entry||08/29/2018 03:16 PM|
thanks for the reply
as an ignorant person in this area with no edge, my only pushback would be this: Per VL, operating margins were 1.1% in 2009 and 15.7% in 2013 and sit at a projected 32.5% in 2018. From 2002 to 2017, you had two years where cash flow fell, 1 year higher, 1 year lower, 2 years higher, 2 years lower, 2 years higher, 2 years lower, and now 4-5 years higher. Just 3 years ago the stock stood at $14.3. After reaching cash flow per share of $1.43 in 2007 it wasn't until 2011 that they hit that height but not until 2015 until it became sustainable. So you had 8 lost years. Now, the narrative is this and that number, but how reliable are these WFE numbers anyway (I don't know - I'm literally asking)? Maybe 2015-2018 is the anomaly? They said in the last call that 32% of sales were from serving the installed base (so there's a lot of new sales). I just want the reason it will go higher - like, up 20%. It isn't higher margins, it isn't capital allocation to buybacks, it isn't higher WFE estimates near-term, so what is it (other than happy market but that will levitate a lot of stocks)? Per VL, the PE doesn't matter unless you pair the operating margin assumption with it. To reiterate, i know as much about this area as what the filings tell me, which isn't an edge. But I do want to invest hard at some point, so...
|Subject||Re: Re: Re: Re: Re: Re: thanks for the writeup|
|Entry||08/29/2018 07:51 PM|
Not sure what you mean by "how reliable are these WFE numbers anyway" - are you asking how sustainable/volatile they are or are the figures cited accurate?
in the latest call: So based on the current view of our markets, our evolving strategy and our financial performance, we are confident that we will exceed our goal of earning $5.08 per share in our 2020 fiscal year. Specifically, we expect semi systems revenue to be more than $11.6 billion in fiscal 2020. We believe $50 billion is the new normal for this industry, and that WFE will keep pace with the revenue growth of the industry. We also expect services plus display revenue of more than $8 billion. Within the mix, we see services revenue being above our prior expectation, fully offsetting display revenue, which we expect to be up in 2020 but still below our original target.
I don't have access to the historical calls, but how accurate were these pronoucements in the past? I'm not arguing against the idea, if it matters. I am the common man, pointing out the obvious. You can spot the cyclical fears in any number of sell-side reports that even I have access to, and I respect what the valuation is telling me now but want to understand why it is priced the way it is. Plus, esp. with something like this, I want to err on the side of something a lot worse happening than I expect.
I really, really appreciate your thoughts...
|Entry||09/01/2018 08:21 AM|
If we were worried about how the next quarter, or even the next year, plays out relative to consensus expectations, we wouldn’t own this (and you probably shouldn’t either).
Go to any semiconductor equipment management meeting, and there are hordes of analysts from places like Balyasny and Citadel (all due respect) desperately seeking some indication of near term outcomes and trying to parse out slight performance differences between the major players. We will leave that game to them.
Fortunately for us, the market participants battling it out over the short-term drive consistent and considerable volatility. That volatility has been very helpful in creating entry points for investors with a slightly longer-term horizon, say 3-5 years.
We agree with Condor’s point: AMAT’s business is cyclical in the near term, but it is a secular grower over the long term. Analyzing long term returns and market share developments would suggest that AMAT’s competitive position is unlikely to be disrupted. And that isn’t to say that the other semicap companies are weakly positioned: almost all of semicap equipment has been carved up into monopoly or duopoly submarkets, which is nice.
Perhaps at odds with Condor, we are somewhat skeptical that a $50bn WFE environment, and earnings power north of $5 per share, is the right assumption to capitalize today. But you don’t need that to get to earnings assumptions that make AMAT cheap in absolute terms. 9x is absurdly cheap … but a business like AMAT would still be cheap at a low/mid-teens multiple of mid-cycle. Getting to a mid-cycle earnings estimate of less than $3 requires punitive assumptions.
Another critical point to keep in mind: while AMAT is cyclical, it is capital-light. Even in the year ended October 2009, AMAT did not go cash flow negative. This resilience gives us the ability to take the long view. This also ties into the topic of the buyback: it isn’t a sign that management is taking a particular view on near term perceptions or outcomes. Instead, they are in the process of shifting the balance sheet to a leverage position that makes more sense relative to the nature of the business. The catalyst for this shift was tax reform, which reduced AMAT’s stranded offshore cash issues and thereby provided management with newfound flexibility.
Has anyone heard a good case for major disruption in semicap equipment that would derail the long-term growth prospects? If so, we would love to hear it.
Also, on the mid-cycle earnings point, this comment from the CFO at a conference back in February may be of interest. Note that 2017 EPS was $3.25:
Our fundamentals look good, so our view is not a downturn in 2019. But if we found ourselves in an unexpected situation, we obviously model lots of scenarios to make sure we can be nimble and disciplined if and when we encounter that situation. And so one of the scenarios we model, let's say it's a $40 billion WFE in 2019, and we advertised at our Analyst Day a few months ago, that we would be at a 26.5% market share in 2020. So in 2019, we'll be 1 click short of that, so let's say 25% market share. $40 billion WFE, 25% market share. We've got a services business that probably won't grow 15% in a year like that, but it will be up a bit and we've got a strong display business. When you put all of that together, we're going to be well north of $16 billion from a revenue standpoint. Flowing that through will be around 28% operating margin. And so from an EPS production standpoint, we'll be nicely north of where we were in 2017, which was the all-time high for the company. And so we feel good about our ability to withstand a downturn. Again, it's not our likely scenario, but if that's the scenario we find ourselves in, I think we're prepared to manage the business and produce strong results for investors.”
|Entry||10/22/2018 11:52 AM|
Krusty, what do you think of AMAT at $33? i agreed with many of the tenets of your original bull argument and now we have the opportunity to buy it another 1/3 cheaper than then...clearly even at a substantially lower (terminally) WFE number the stock can work from here, but I guess I am more interested in hearing your thinking re what will change sentiment towards this name/space in the absence of any good news re WFE itself? I guess a lot of these worries relate to things Condor et al have discussed in previous commentary re memory (MU etc), but how or what do you think is required to get the market to look beyond the next 12mos of potential WFE headwinds and think about the right multiple on through-the-cycle earnings of a business like this? do we simply need a much larger/more immediate commitment from management re buying back the stock?
|Subject||Re: thoughts now?|
|Entry||10/22/2018 01:59 PM|
while we wait for Krusty - re: buyback question
first 9m end July they bot 4.5b for $53.72
previous year, at a much lower price, they bot 787m
spend - oh - 90 seconds with VL and perhaps suggests a simple rule: when operating margins are down significantly, buy a lot of shares the next year - they did this in 2012
ignored it completely this year (in fact, they did the reverse)
in the face of these buybacks the multiple has gone from 15x to 10x
|Subject||Re: Re: thoughts now?|
|Entry||10/23/2018 05:36 AM|
hey Spocks- thanks, i get their b/back timing hasn't been ideal. but they were also operating w a huge amount of excess cash, nothing else to buy, and much harder to sit on it than use it...i guess what I'm saying is the multiple hasnt gone from 15x to 10x because they blew their load on a poorly timed buyback. in any case they have plenty of cash coming in - even if WFE corrects - to do more buybacks - from a much better starting stock price now. maybe i'm being too naive but really find it hard to see how you lose mid-term buying the stock here
|Subject||Re: Re: Re: thoughts now?|
|Entry||10/23/2018 09:33 AM|
i was responding to this part of your note:
how or what do you think is required to get the market to look beyond the next 12mos of potential WFE headwinds and think about the right multiple on through-the-cycle earnings of a business like this? do we simply need a much larger/more immediate commitment from management re buying back the stock?
i was just observing that the buyback was already in place and, like most cyclical business models (and most stocks I follow at least in general), didn't do a thing as long as perceptions were glum near-term, so my inference is that perceptions have to change and that wouldn't be altered by still more buybacks (perhaps). just my opinion - we'll see what the company thinks and does