Applied Materials EPS Growing Faster Than Its Stock Price

Applied Materials delivered a second consecutive strong quarterly performance, with third-quarter revenue increasing 13 percent and non-GAAP EPS rising 51 percent year-over-year and $0.02 above consensus. New orders surged 26 percent, reflecting across-the-board demand strength, while backlog rose 60 percent.

"Amid widespread demand growth, foundry orders from Taiwan and display orders driven by OLED upgrade were particularly noteworthy," analyst Jim Kelleher wrote in a note.

Current-quarter guidance was particularly strong and handily surpassed pre-reporting expectations. The company expects fiscal fourth-quarter revenue in the $3.2 billion–$3.4 billion range, which would be up in mid- to high-teens year-over-year. With gross margins expanding and costs well-contained, the company sees non-GAAP EPS in the mid-$0.60 range, compared to pre-reporting expectations of $0.48.

Relatedlink>Related Link: Applied Materials' Multi-Dimensional Growth Story Is Playing Out

Kelleher raised his FY16 non-GAAP earnings forecast to $1.76 a share from $1.57 and FY17 forecast to $2.16 from $1.91.

"We believe the company's ability to address significant technology transformations bode well for AMAT going forward. Simultaneously, AMAT's increasingly efficient operations are helping it to expand margins and boost profits in a tight top-line environment," Kelleher added.

As such, the analyst reiterated his Buy rating on the stock and raised his target price by $5 to $34.

Shares of Applied Materials gained 18 percent in 2016, compared to a 35 percent gain for Argus-covered semiconductor stocks. This represents a huge turnaround, given that shares were down more than 25 percent in February.

At time of writing, shares were seen trading at $30.07, up 3.51 percent on the day.

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