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Applied Materials (AMAT) Up 26.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Applied Materials (AMAT - Free Report) . Shares have added about 26.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Applied Materials due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Applied Materials’ Q4 Earnings & Revenues Beat, Rise Y/Y

Applied Materials Inc. reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.25 per share, which surpassed the Zacks Consensus Estimate by 6.8%. Moreover, the bottom line improved 17.9% sequentially and also soared 56.2% year over year.

Net sales of $4.69 billion surpassed the Zacks Consensus Estimate by 1.8%. Also, the top line rose24.9% from the year-ago period as well as6.7% from the previous quarter.

Strong segmental performance, especially by Semiconductor Systems and Applied Global Services drove the company’s top line.

Further, the company witnessed a solid momentum in key geographies, namely the United States, Europe, Japan, Korea, Southeast Asia and China, which remained a major positive.

Management believes that demand for foundry logic is expected to remain strong in the near term, courtesy of the rising need for specialty nodes in automotive, power, 5G rollout, IoT, communications and image sensor markets.

In addition, the company expects DRAM spending to improve in the near term.

Segments in Detail

The Semiconductor Systems generated $3.1 billion sales (which contributed 66% to its net sales), reflecting an increase of 33.4% year over year. This was driven by robust metal deposition systems and a solid momentum across products and devices.

Applied Global Services reported sales of $1.1 billion (24% of net sales), which increased 13.2% from the prior-year quarter. Solid momentum among long-term service agreements drove the top line within the segment.

Sales from Display and Adjacent Markets came in at $485 million (10% of net sales), up 6.1% from the year-ago level. Growing usage of OLED technology in several devices, such as smartphones, televisions and notebooks contributed well.

Revenues by Geography

The United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $448 million, $206 million, $706 million, $719 million, $872 million, $161 million and $1.6 billion, contributing 10%, 4%, 15%, 15%, 19%, 3% and 34% to net sales, respectively.

On a year-over-year basis, sales in United States, Europe, Japan, Korea, Southeast Asia and China increased 8.7%, 40.1%, 49.9%, 52.6%, 19.2% and 31.4%, respectively. Notably, sales in Taiwan fell 5.1% from the year-ago quarter.

Operating Results

Non-GAAP gross margin was 45.7%, expanding 190 basis points (bps) from the year-ago quarter.

Operating expenses were $847 million, up 10% from the year-ago quarter. As a percentage of sales, the figure contracted 240 bps year over year to 18.1%.

Non-GAAP operating margin of 28.3% for the reported quarter expanded 460 bps from the prior-year period.

Balance Sheet & Cash Flow

As of Oct 25, 2020, cash and cash equivalent balance, and short term investments were $5.7 billion compared with $4.8 billion as of Jul 26, 2020.

Inventories were $3.90 billion in the fiscal fourth quarter compared with$3.95 billion in the fiscal third quarter. Accounts receivables increased to $2.9 billion from $2.8 billion in the previous quarter.

Applied Materials generated cash flow of $1.3 billion, up from $867 million in the fiscal third quarter.

The company returned $50 million and $200 million through stock repurchases and cash dividends, respectively.

Guidance

For first-quarter fiscal 2021, Applied Materials expects net sales to be $4.95 (+/-$200 million).

Non-GAAP EPS is expected in the range of $1.20-$1.32.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 14.43% due to these changes.

VGM Scores

At this time, Applied Materials has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Applied Materials has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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