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Bull of the Day: Applied Materials (AMAT)

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Applied Materials (AMAT) is a global leader in semiconductor equipment sales. It is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.

The company reported results in four segments—Semiconductor Systems (64% of total 2016 revenue), Applied Global Services (24%), Display and Adjacent Markets (11%), and Corporate and Other (1%).

Excellent Results and Raised Guidance

The company reported strong results for its second quarter ended April 30, 2017, beating on both the top and bottom lines.

Net sales increased by 45% year-over-year to $3.55 billion; while operating margin increased by 9.2 points to 26.5%.

Pro-forma earnings per share (EPS) of 79 cents were ahead of the Zacks Consensus Estimate and toward the higher end of the guided range.

The company returned $390 million to shareholders via buybacks and cash dividends during the quarter.

“Applied Materials delivered the highest quarterly revenue and earnings in our history, and we’ve now set new earnings records for four quarters in a row,” said the CEO.  “Across the company we have tremendous momentum as our markets are strong and getting stronger, and we’re sustainably growing faster than these markets by expanding our served opportunity and gaining share.”

For the current quarter, the company expects revenues to be between $3.60 and $3.75 billion and non-GAAP EPS between 79 and 87 cents.

Rising Estimates

After better-than-expected results and updated guidance, the Zacks Consensus Estimates for FY 2017 and 2018 have increased to $3.10 per share and $3.28 per share, from $2.69 and $2.83 respectively, before the results. The company has beaten the estimates in 19 out of past 20 quarters.


Solid Industry Outlook


“Semiconductor Equipment - Wafer Fabrication” industry is currently ranked 3 out of 265 Zacks industries (top 1%). With rising demand from many high growth areas, the industry is likely to outperform the broader markets in the coming months.

Per WSJ, chip-equipment makers are seeing increased demand from customers, like Samsung, Intel and TSM , mainly for components for memory chips and organic light emitting diode, or OLED, displays for smartphones.

The Bottom Line

The company has been the industry leader for over two decades, and is strongly positioned to benefit from its industry leading position. The stock is up about 44% this year but due to expanding earnings, it is still trading at a reasonable forward PE of 14.88.

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