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Why Is Applied Materials (AMAT) Up 1.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Applied Materials (AMAT - Free Report) . Shares have added about 1.3% 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 drivers.

Applied Materials’ Q1 Earnings & Revenues Beat

Applied Materials reported first-quarter fiscal 2021 non-GAAP earnings of $1.39 per share, which surpassed the Zacks Consensus Estimate by 9.4%. Moreover, the bottom line improved 11.2% sequentially and also rose 42% year over year.

Net sales of $5.16 billion surpassed the Zacks Consensus Estimate of $4.98. Also, the top line rose 24% from the year-ago period as well as 10.1% from the previous quarter.

Strong performance delivered by all the segments, especially by Semiconductor Systems drove the company’s top line. Increasing demand for silicon in several applications across various markets remained a major tailwind.

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

Management believes that the 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 increase in the days ahead.

Segments in Detail

Semiconductor Systems generated $3.6 billion in sales (which contributed 69% to its net sales), reflecting a year-over-year increase of 26.3%. This was driven by growing traction across etch, metal deposition systems and chemical-mechanical planarization (CMP).

Applied Global Services reported sales of $1.2 billion (23% of net sales), which increased 16% from the prior-year quarter. Strong growth in the services business, owing to solid momentum among long-term service agreements drove the top line for the segment.

Sales from Display and Adjacent Markets were $411 million (8% of net sales), up 24% from the year-ago level. Growing usage of OLED technology in several devices, such as smartphones, especially 5G phones equipped with OLED screens, televisions, notebooks and IT applications, contributed well.

Revenues by Geography

The United States, Europe, Japan, Korea, Taiwan, Southeast Asia and China generated sales of $343 million, $299 million, $458 million, $1.3 billion, $1.2 billion, $190 million and $1.4 billion, contributing 6%, 6%, 9%, 25%, 23%, 4% and 27% to net sales, respectively.

On a year-over-year basis, sales in Europe, Japan, Korea, Southeast Asia and China increased95.4%, 30.5%, 153.7%, 163.9%and 8.7%, respectively. Notably, sales in the United States and Taiwan fell 22.2% and 12.1% from the year-ago quarter, respectively.

Operating Results

Non-GAAP gross margin was 45.9%, expanding 100 basis points (bps) from the year-ago quarter.

Operating expenses were $1.1 billion, up 30.6% from the year-ago quarter. As a percentage of sales, the figure expanded 100 bps year over year to 18.1%.

Non-GAAP operating margin of 29% for the reported quarter expanded 330 bps from the prior-year period.

Balance Sheet & Cash Flow

As of Jan 31, 2020, cash and cash equivalent balance, and short-term investments were $6.6 billion compared with $5.7 billion as of Oct 25, 2020.

Inventories were $3.92 billion in the fiscal first quarter compared with $3.90 billion in the fiscal fourth quarter. Accounts receivables increased to $3.04 billion in the reported quarter from $2.9 billion in the previous quarter.

Long-term debt was $5.449 billion at the end of the fiscal first quarter compared with $5.448 billion at the end of the fiscal fourth quarter.

Applied Materials generated a cash flow of $1.4 billion, up from $1.3 billion in the prior quarter. The company returned $201 million to shareholders through cash dividends.

Guidance

For second-quarter fiscal 2021, Applied Materials expects net sales of $5.39 (+/-$200 million). Further, Non-GAAP EPS is expected to be $1.44 to $1.56.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 18.53% 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 D on the value side, putting it in the bottom 40% 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. It comes with little surprise Applied Materials has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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