Applied Materials' Multi-Dimensional Growth Story Is Playing Out

UBS reiterated its Buy rating on Applied Materials, Inc. AMAT, 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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