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Applied Materials (AMAT - Free Report) delivered another strong quarter on February 15 and Wall Street analysts have been busy raising estimates and price targets, pushing shares back to a Zacks #1 Rank.
AMAT develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Customers for these products include semiconductor wafer manufacturers and semiconductor integrated circuit manufacturers, who either use the ICs they manufacture in their own products or sell them to other companies.
These ICs are the key components in most advanced electronic products such as computers, telecommunications devices, automotive engine management systems and electronic games.
UBS: New Display Tools Drive Capex and Growth
UBS raised its price target on Applied Materials from $40 to $42 after the company guided its April quarterly sales and non-GAAP EPS to $3.5 billion and $0.76, both higher than the Wall Street consensus of $3.3 billion and $0.63, respectively. StreetInsider.com provided the following notes from the UBS report by analyst Stephen Chin on February 16...
"Applied had strong Jan-17 quarterly results and guided Apr-17 significantly higher than we expected. We believe there are some concerns that Applied's FY17 semiconductor sales are 1H loaded at 55% and 2H at 45% which implies 2H17 sales are down –20% versus 1H17. But, we keep a Buy rating as we believe the longer term trends in display equipment and semicap equipment will see 2018 as another sales growth year. We believe a key positive was Applied's new 2017 guidance for wafer fab equipment to grow over 5% yoy with 2018 also a growth year.
"Applied continues to execute well in NAND equipment orders which were $1B and at an all-time high. Foundry orders likely remain an upside case once more 7nm orders are placed next year. The other key positive was Applied's new 2017 guidance for display capex to be up 22% yoy versus its prior estimate of up 14% yoy. We believe Applied can continue to outgrow display capex trends if it introduces new display tools such as an evaporation tool this year."
Stifel: Multi Year Growth Story Still in Early Stages
Analysts at Stifel Nicolaus also love the growth story here and also raised their price target to $42. Here's what they had to say...
"Following Applied Materials 1Q17 (Jan) earnings results/conference call, we came away reaffirmed on the company’s growth prospects in 2017 and our long-term thesis on the name. We believe the company is once again well positioned to outperform industry growth rates in both semi equipment and in display equipment. Moreover, we believe that we are still at the early stages of a multi-year growth story with the company.
"In our view, the company’s operating model continues to improve and this in turn, will keep stock multiples attractive and the momentum in the stock moving forward as well. Applied has been our most preferred name for some time and even with lofty expectations, the story continues to get better. We maintain our Buy rating on the shares."
The investment bank accordingly raised their full year estimates for EPS from $2.74 to $3.00, and for revenues from $12.95 billion to $13.4 billion.
Multiple Growth Drivers
My colleague Neena Mishra wrote about AMAT as Bull of the Day in mid December. Here was one section of her article worth repeating...
According to AMAT management, major market catalysts that will continue to drive growth in the coming years are the leading edge foundry in logic, 3D NAND, patterning, and advance display in China.
The company continues to gain market share in the semiconductor equipment market. Additionally, in the past few years, the company has successfully diversified its business which is no longer PC demand driven. Additional demand drivers have emerged in the areas of big data, Internet of Things (IoT), cloud infrastructure, artificial intelligence, virtual reality and self-driving cars.
One new and fast growing area of the business is equipment used to produce organic light-emitting diode, or OLED, displays. According to a WSJ report, Apple is planning to use an OLED display from Samsung Electronics Co. for its next iPhone.
OLED displays are reported to be much better than traditional LCD panels. This would be great for the company which is a key supplier Samsung’s huge chip-fabrication business.
(end of Mishra notes)
Put it all together and AMAT remains a key semi equipment supplier and innovator to own during this strong economic/technology cycle.
Disclosure: I own shares of AMAT for the Zacks TAZR Trader service.
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Bull of the Day: Applied Materials (AMAT)
Applied Materials (AMAT - Free Report) delivered another strong quarter on February 15 and Wall Street analysts have been busy raising estimates and price targets, pushing shares back to a Zacks #1 Rank.
AMAT develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Customers for these products include semiconductor wafer manufacturers and semiconductor integrated circuit manufacturers, who either use the ICs they manufacture in their own products or sell them to other companies.
These ICs are the key components in most advanced electronic products such as computers, telecommunications devices, automotive engine management systems and electronic games.
UBS: New Display Tools Drive Capex and Growth
UBS raised its price target on Applied Materials from $40 to $42 after the company guided its April quarterly sales and non-GAAP EPS to $3.5 billion and $0.76, both higher than the Wall Street consensus of $3.3 billion and $0.63, respectively. StreetInsider.com provided the following notes from the UBS report by analyst Stephen Chin on February 16...
"Applied had strong Jan-17 quarterly results and guided Apr-17 significantly higher than we expected. We believe there are some concerns that Applied's FY17 semiconductor sales are 1H loaded at 55% and 2H at 45% which implies 2H17 sales are down –20% versus 1H17. But, we keep a Buy rating as we believe the longer term trends in display equipment and semicap equipment will see 2018 as another sales growth year. We believe a key positive was Applied's new 2017 guidance for wafer fab equipment to grow over 5% yoy with 2018 also a growth year.
"Applied continues to execute well in NAND equipment orders which were $1B and at an all-time high. Foundry orders likely remain an upside case once more 7nm orders are placed next year. The other key positive was Applied's new 2017 guidance for display capex to be up 22% yoy versus its prior estimate of up 14% yoy. We believe Applied can continue to outgrow display capex trends if it introduces new display tools such as an evaporation tool this year."
Stifel: Multi Year Growth Story Still in Early Stages
Analysts at Stifel Nicolaus also love the growth story here and also raised their price target to $42. Here's what they had to say...
"Following Applied Materials 1Q17 (Jan) earnings results/conference call, we came away reaffirmed on the company’s growth prospects in 2017 and our long-term thesis on the name. We believe the company is once again well positioned to outperform industry growth rates in both semi equipment and in display equipment. Moreover, we believe that we are still at the early stages of a multi-year growth story with the company.
"In our view, the company’s operating model continues to improve and this in turn, will keep stock multiples attractive and the momentum in the stock moving forward as well. Applied has been our most preferred name for some time and even with lofty expectations, the story continues to get better. We maintain our Buy rating on the shares."
The investment bank accordingly raised their full year estimates for EPS from $2.74 to $3.00, and for revenues from $12.95 billion to $13.4 billion.
Multiple Growth Drivers
My colleague Neena Mishra wrote about AMAT as Bull of the Day in mid December. Here was one section of her article worth repeating...
According to AMAT management, major market catalysts that will continue to drive growth in the coming years are the leading edge foundry in logic, 3D NAND, patterning, and advance display in China.
The company continues to gain market share in the semiconductor equipment market. Additionally, in the past few years, the company has successfully diversified its business which is no longer PC demand driven. Additional demand drivers have emerged in the areas of big data, Internet of Things (IoT), cloud infrastructure, artificial intelligence, virtual reality and self-driving cars.
One new and fast growing area of the business is equipment used to produce organic light-emitting diode, or OLED, displays. According to a WSJ report, Apple is planning to use an OLED display from Samsung Electronics Co. for its next iPhone.
OLED displays are reported to be much better than traditional LCD panels. This would be great for the company which is a key supplier Samsung’s huge chip-fabrication business.
(end of Mishra notes)
Put it all together and AMAT remains a key semi equipment supplier and innovator to own during this strong economic/technology cycle.
Disclosure: I own shares of AMAT for the Zacks TAZR Trader service.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>