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Will Display Strength Aid Applied (AMAT) in Q3 Earnings?

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Applied Materials, Inc. (AMAT - Free Report) is set to report fiscal third-quarter 2018 results on Aug 16. In the last reported quarter, it delivered a positive earnings surprise of 7.96%.

The company’s surprise history has been pretty impressive. It beat estimates in each of the trailing four quarters, with an average positive earnings surprise of 5.76%.

Notably, on a 12-month basis, Applied Materials’ shares have returned 9.94%, underperforming the industry’s rally of 23.2%.

 

Let’s see how things are shaping up for this announcement.

Strong Demand for Applied’s Services

The company has well-differentiated products along with high market share, and is efficiently delivering key enabling technology to logic and foundry customers. Service is an important part of Applied's portfolio that grew significantly in the last reported quarter. The Applied Global Services (AGS) segment increased 7.2% sequentially and 30.2% year over year. The segment is expected to perform well in the quarter to be reported, driven by improved device and yield performance.

The Zacks Consensus Estimate for AGS for the third quarter is pegged at $970 million. The same for Semiconductor Systems Group (SSG) is pegged at $2.7 billion for the to-be-reported quarter.

Strength in Display to Drive Revenues

The company has gained considerable success in expanding beyond semiconductors, particularly in display. New display technologies such as OLED are opening new market opportunities for Applied Materials. The available market opportunity is now more than 10 times than that of the traditional LCD.

In the last reported quarter, the Display segment was up 31.9% sequentially and 53.5% from the year-ago level. The segment is expected to be driven by significant opportunities coming from investments in areas such as artificial intelligence, big data, cloud infrastructure, Internet of Things (IoT), virtual reality and smart vehicles.

The Zacks Consensus Estimate for the Display segment for the quarter to be reported is pegged at $721 million.

What Our Model Suggests

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if these have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Applied Materials has a Zacks Rank #3 and an Earnings ESP of -0.78%, a combination that does not suggest an earnings beat in the to-be-reported quarter.

Applied Materials, Inc. Price and EPS Surprise

 

Applied Materials, Inc. Price and EPS Surprise | Applied Materials, Inc. Quote

Stocks to Consider

We see a likely earnings beat for each of the following companies.

Avnet, Inc. (AVT - Free Report) has an Earnings ESP of +0.63% and a Zacks Rank #2.

Semtech Corporation (SMTC - Free Report) has an Earnings ESP of +0.53% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cisco Systems, Inc. (CSCO - Free Report) has an Earnings ESP of +0.07% and a Zacks Rank #3.

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