Bull of the Day: Applied Material (AMAT)

Founded in 1967 and headquartered in Santa Clara, CA, Applied Material (AMAT) is a leading equipment supplier to the global semiconductor industry. They have been the industry leader for over twenty years. Their equipment is mainly used in the manufacturing of semiconductors, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.

The company operated through the following segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.

Impressive Results and Raised Guidance

The company reported strong results for its fiscal fourth quarter 2017, beating our estimates on both the top and the bottom lines.

Its pro forma earnings per share of 93 cents beat the Zacks Consensus Estimate mark by 2 cents and were toward the higher end of the guided range of 86-94 cents. Earnings were up 40.9% year over year.

Revenues of $3.97 billion also beat the Zacks Consensus Estimate of $40 million and were at the high end of the guided range of $3.85-$4 billion. Revenues were up 20.4% year over year.

“Fiscal 2017 was a record-breaking year for the company. We have great momentum and we’re confident that in 2018 we can deliver strong double-digit growth across our semiconductor, display and service businesses,” said the CEO.

The company has an excellent record of beating estimates. They have missed only once in the past five years.

Surging Estimates

After strong results, analysts have been raising their estimates for the company. The Zacks Consensus Estimates for the company for the current and next year have surged to $4.04 per share and $4.37 per share from $3.68 and $3.89 respectively, before the results. Rising estimates sent the stock to a Zacks Rank # 1 (Strong Buy).

Applied Materials, Inc. Price, Consensus and EPS Surprise

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

Multiple Growth Drivers

The company continues to gain market share in the semiconductor market. Additionally, in the past few years, the company has successfully diversified its business which is no longer PC demand driven.

Additional demand drivers have emerged in the areas of big data, Internet of Things (IoT), cloud infrastructure, artificial intelligence, virtual reality and self-driving cars.

“This is the most exciting time in the history of the electronics industry. AI will transform entire industries over the coming years, creating trillions of dollars of economic value, and Applied is uniquely positioned to deliver the innovative materials needed to enable next-generation memory and high-performance computing,” according to the CEO.

The Bottom-Line

Shares of this company are up about 67% in the past one year but despite this surge, they are still trading at an attractive valuation of 13.45 times forward earnings. The stock looks pretty good in terms of Industry/Sector Rank too.

Zacks Industry Rank for “Semiconductor Equipment - Wafer Fabrication” is currently 3 out of 265 (top 1%), indicating the likelihood of continued outperformance.

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