Semiconductor Equipment Provider Applied Materials Outpaces Market with Strong Growth Potential

By Don Francis, Editor
November 21, 2023 6:49 AM UTC
Semiconductor Equipment Provider Applied Materials Outpaces Market with Strong Growth Potential

JP Morgan's Harlan Sur raised their price target on Applied Materials (NASDAQ: AMAT) by 3% from $165 to $170 on 2023/11/17. The analyst maintained their Strong Buy rating on the stock.

According to Sur, despite the decline in semiconductor and wafer fab equipment spending in FY 2023, Applied Materials is poised to outpace the market. The analyst attributes this to the company's healthy exposure to foundry/logic, which remains relatively robust compared to memory and advanced logic/foundry. Sur predicts that Applied Materials is well positioned to capitalize on multiple upcoming technology advancements, which are expected to contribute to its leading growth profile.

Applied Materials recently reported its financial results for Q4 2023. The company beat the Zacks Consensus Estimate for earnings per share (EPS) with $2.12, representing a 7.1% beat. It also exceeded the EPS of Q4 2022 by 4.4%. The company's revenue for the quarter was $6.72B, surpassing the Zacks Consensus Estimate of $6.52B. However, it missed Q4 2022's revenue by a marginal 0.4%. The gross margin for the quarter was 47.1%, up from the previous year's 45.9%. Operating expenses increased to $1.198B from Q4 2022's $1.107B. Applied Materials also distributed $700M in stock repurchases and $268M in dividends to shareholders during the quarter.

For FY 2023, Applied Materials reported an EPS of $8.05, a 4.5% increase compared to FY 2022. The company's revenue for the fiscal year was $26.52B, up 2.8% from the previous year. The gross margin improved to 46.7% from FY 2022's 46.5%. Operating expenses also saw an increase to $4.73B from FY 2022's $4.21B. Applied Materials distributed $2.19B in stock repurchases and $975M in dividends to shareholders for the fiscal year.

Looking ahead, management has provided guidance for Q1 2024. Applied Materials expects an EPS of $1.72 to $2.08, with the Zacks Consensus Estimate at $1.85. The company forecasts a revenue range of $6.37B to $6.41B, with the Zacks Consensus Estimate at $6.39B. The gross margin is projected to be 47%, and operating expenses are anticipated to be $1.23B. President & CEO Gary Dickerson expressed confidence in the company's performance, stating that Applied Materials delivered record revenue, earnings, and cash flow in FY 2023. He highlighted the company's broad product portfolio, strong customer relationships, and leadership at major technology inflections, which position them well for future growth.

In addition to Harlan Sur's rating update, other analysts have also provided their outlook on Applied Materials. Joseph Moore from Morgan Stanley raised their price target by 2.2% from $139 to $142, while maintaining a Hold rating on the stock. Vijay Rakesh from Mizuho increased their price target by 3.1% from $162 to $167 and maintained a Strong Buy rating on the stock.

Currently, 81.3% of top-rated analysts rate Applied Materials as a Strong Buy or Buy, while 18.8% consider it a Hold. No analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that Applied Materials will achieve an EPS of $8.06 for the upcoming year. If this prediction holds true, it would represent a 5.8% increase year-over-year.

Since the release of Applied Materials' latest quarterly report on November 16, 2023, the stock price has declined by 4%. However, on a year-over-year basis, the stock has seen significant growth of 42.3%. During this period, Applied Materials has outperformed the S&P 500, which has risen by 15.2%.

Harlan Sur, the JP Morgan analyst who raised the price target on Applied Materials, is ranked in the top 4% out of 4,402 Wall Street analysts by WallStreetZen. Sur specializes in the Technology sector and has an average return of 15.3% with a 69.7% win rate.

Applied Materials, Inc. is a provider of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells various manufacturing equipment used in fabricating semiconductor chips or integrated circuits. The Applied Global Services segment offers integrated solutions to optimize equipment and fab performance and productivity. The Display and Adjacent Markets segment provides products for manufacturing various display technologies. Applied Materials operates globally and is headquartered in Santa Clara, California.

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