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Applied Materials' Multi-Dimensional Growth Story Is Playing Out

Applied Materials' Multi-Dimensional Growth Story Is Playing Out - Applied Materials, Inc. NASDAQ:AMAT

UBS reiterated its Buy rating on Applied Materials, Inc. AMAT 7.08%, as the company's strong semicap orders with foundry customers are just getting started and appear sustainable over the next year, while its OLED equipment orders offer long-term growth opportunity.

"We believe Applied's view that its total orders can be over $3 billion (was $3.6 billion this quarter) the next few quarters suggests this high level can be sustained and have modelled $3.1 billion in both Oct-16 and Jan-17.," analyst Stephen Chin wrote in a note.

Key Takeaways

The first key takeaway from the quarter's results is that Applied's foundry orders of $1.2 billion are at an all-time high, and the company is a big beneficiary when foundry customers drive overall semis capex.

Related Link: Applied Material's Shares Rallied 8% During Q2; What's Analyst Sentiment Ahead Of Earnings?

The other key takeaway is the sustainability of its display equipment orders, which rose 6 percent to $803 million and 20–25 percent its total.

Applied's NAND orders were only $332 million and fell 66 percent.

"If NAND WFE in CY16 is up 40 percent yoy this suggests its NAND orders can
be $660 million the next 2 qtrs. If AMAT is taking NAND share, there could be more upside," Chin continued.

Guidance And Estimates

Applied guided October 16 quarter sales and EPS to $3.3 billion and $0.65, respectively, which was much higher than consensus at $2.9 billion and $0.48. Applied also suggested its January 17 quarterly EPS could double the prior year to $0.52 (consensus is at $0.44).

Chin raised his FY16 and FY17 EPS estimate to $2.20 and $2.35 from the previous $1.93 and $2.17. The analyst said a key catalyst will be what Applied's new long-term EPS guidance could be at its 9/21 analyst meeting.

"With the strong near term guidance we estimate Applied's long term EPS could be $3," Chin added.

Chin raised its price target to $35 from $28.50. Shares closed Friday's normal trading session up 7.08 percent at $29.64.

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Aug 2016CitigroupMaintainsBuy
Aug 2016UBSMaintainsBuy
Aug 2016Stifel NicolausMaintainsBuy

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