Stifel: Applied Materials' Beat-And-Raise Q1, Dividend Boost, Cash Generation Reinforce Bullish Stance

Applied Materials, Inc. AMAT's top-and-bottom-line beat in its fiscal first-quarter report Wednesday and better-than-expected guidance turned at least one Wall Street analyst incrementally bullish.

The Analyst

Stifel's Patrick Ho maintains a Buy rating on Applied Materials' stock with a price target boosted from $66 to $71.

The Thesis

Applied Materials's earnings report consisted of three notable takeaways, Ho said in a note:

• A reaffirmation of a positive outlook for 2018, which should once again lead to outperformance versus peers.
• Management is tracking ahead of 2020 operating model targets.
• The company boosted its dividend and share buyback authorization.

Overall, the three main takeaways not only benefit shareholders, but support Applied Materials' view that it is performing well within the changing landscape of the equipment space, the analyst said. But this shouldn't come as a surprise to investors, as the company is benefiting from strong spending trends in semis and display and industrywide favorable capital intensity trends — and simultaneously gaining share from competitors, Ho said. 

Comments from Applied Materials' management that 2018 and 2019 could combine for $100 billion in WFE spending should "further throw cold water on some of the bear thesis" that Applied Materials is approaching a peak in the cycle, the analyst said. 

Bottom line, Applied Materials will continue generating a "significant amount of cash," and if the industrywide dynamics are as strong as believed, the company won't need to hoard cash when the cycle does eventually hit a downturn, according to Stifel. 

Price Action

Shares of Applied Materials were up 1.54 percent Thursday morning.

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Photo courtesy of Applied Materials.