In a report published Monday, Bank of America analyst Krish Sankar reiterated a Neutral rating on Applied Materials AMAT, and raised the price target from $19.00 to $22.00.
In the report, Bank of America noted, “We take a detailed look at the earnings potential post-merger in both a peak and a more normal spending environment of $30-32B. The peak EPS goal telegraphed by the management was around $2.40 in EPS in a $37B wafer fab equipment (WFE) spending environment baking in synergies, buybacks. We estimate under these circumstances, the combined entity could have normalized earnings power of ~$1.62 factoring in the synergies.
"As a cyclical stock, we believe a 12-13x multiple is appropriate on normalized earnings, but given the mgmt track record, we apply a slight premium of 13-14x. This gives us our new PO of $22.”
Applied Materials closed on Friday at $20.17.
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