Applied Materials Gains as Needham Ups Rating, Target Price

Applied Materials’ AMAT price target was recently raised by 9% to $72 from $66 by Needham’s analyst Edwin Mok. The analyst also raised its rating from Buy to Strong Buy.

Following the news, Applied Materials’ shares inched up 2.42%, eventually closing at $55.92. Also, shares of Applied Materials have been steadily treading higher on a 12-month basis. The stock has returned 70.6% compared with the industry’s growth of 63.7%.

Why the Hike?

The analyst at Needham remains optimistic about Applied Materials’ market dominance in the semiconductor space.

The analyst believes that capital equipment spending has become less cyclical and the current wafer fab equipment (WFE) growth will continue in the near future, thus helping Applied Materials. He believes that the company's WFE mix is now more balanced in 2018 as logic and memory comprises 52% and 48% of Applied’s semiconductor business, respectively.

Notably, the company has tasted considerable success in expanding beyond semiconductors, particularly in display. New display technologies like OLED and large format TVs are opening new market opportunities for Applied Materials.

With 13 large LCD and more than 20 OLED projects in various stages of development, Mok expects Applied Materials to remain in a better position to deal with WFE cyclicality compared with its peers. He believes that sizeable ramp in the display equipment market will encourage the company to raise its guidance.

Moreover, Mok sees upside to the company's calendar year 2020 revenue target of $19.6 billion and pro forma earnings per share of $5.08. He believes that the new tax law could lead to acceleration in the share repurchase activity, supporting higher share price in the near future.

With its sustained focus on growth areas, sound fundamentals, margin expansion and strength within the semiconductor space, Mok remains positive about the company’s overall success in the future.

Conclusion

Applied Materials is one of the world’s largest suppliers of fabrication equipment to semiconductor, LCD and solar PV cell manufacturers. Strength in mobility platforms and TV capacity builds, better utilization of resources, and increased WFE spending are the major positives for the company.

The company has an impressive record of returning cash to shareholders through share buybacks and regular dividend payouts. In the fiscal fourth quarter, the company returned $492 million through stock repurchases and cash dividends to shareholders.

Moreover, the company has well-differentiated products and high market share. Also, the company has witnessed strong top-line growth and an expanding bottom line in the last few quarters. The Zacks Rank #1 (Strong Buy) company’s solid market position in China, expansion in display, continued innovation and strong long-term growth potential position it well.

Applied Materials, Inc. Price and Consensus

 

Applied Materials, Inc. Price and Consensus | Applied Materials, Inc. Quote

Other Stocks to Consider

Applied currently carries at a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are ASML Holding N.V. ASML, Lam Research Corporation LRCX and PetMed Express, Inc. PETS, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for ASML Holding, Lam Research and PetMed Express is projected to be 21%, 14.9% and 10%, respectively.

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