Market Overview

'A Good Time To Buy Equipment Stocks': Citi Upgrades Lam Research, Updates Sector Model

'A Good Time To Buy Equipment Stocks': Citi Upgrades Lam Research, Updates Sector Model
Related AMAT
Trade Spat's A Boon For This Bearish Chip ETF
Benzinga's Top Upgrades, Downgrades For June 13, 2018
Evercore, Cowen name semi picks ahead of earnings (Seeking Alpha)
Related KLAC
Benzinga's Top Upgrades, Downgrades For June 22, 2018
Benzinga's Top Upgrades, Downgrades For May 15, 2018
46 Nasdaq 'Safer' Dividend Net Gains Led By Lam, Western, Broadcom, Vodafone, And KLA-Tencor, Per Broker July Targets (Seeking Alpha)

With most semiconductor equipment makers already having reported earnings, Citi shared its takeaways on the sector and updated its wafer fab equipment model Monday. 

The Analyst

Analyst Atif Malik upgraded Lam Research Corporation (NASDAQ: LRCX) from Neutral to Buy and increased the price target from $220 to $245. 

Buy-rated Applied Materials, Inc. (NASDAQ: AMAT) is Citi's top pick in the space. Citi raised its price target for the stock from $70 to $78. 

Buy-rated KLA-Tencor Corp (NASDAQ: KLAC) is its No. 2 pick. Citi has a $127 price target for the stock. 

MKS Instruments, Inc. (NASDAQ: MKSI) is Citi's top pick in the small-to-mid-cap space. The firm has a Buy rating on the stock with a $130 price target. 

Buy-rated ASML Holding NV (ADR) (NASDAQ: ASML) is Citi's top pick in the European Union. 

In Asia, Citi is positive on TOKYO ELECTRON/ADR (OTC: TOELY) and ASMPT.

The Thesis

After 25-percent outperformance relative to the Philadelphia Semiconductor Index in 2017, shares of the "big three" U.S. semiconductor equipment makers have performed roughly in line with the index, Malik said in a Monday report. Weak memory-spend concerns are largely priced in, the analyst said.

Citi expects NAND equipment spending growth to accelerate in 2019, as memory manufacturers move 92/96-layer 3-D NAND plans from the second half of 2018 to the first half of 2019.

The firm also expects DRAM equipment spending to remain stable this year.

"We model 2019 wafer fab equipment spend of $61 billion, above the Street's $58 billion, and we believe the second half of 2018 is a good time to buy equipment stocks in anticipation of equipment shipments recovery in the first half of 2019," Malik said.

Citi Projects Top-Line Growth At Lam Research

Stable memory investment by Lam Research in 2019 can drive strong top-line growth, Malik said. Despite the company's improving foundry share, its memory sales are still 75 percent on a trailing 12-month basis.

Citi projects that Lam's memory capital expenditures will grow 11 percent and 8 percent, respectively, in 2018 and 2019 and drive the stock higher over the next year.

Applied Materials: A No. 1 Pick 

Applied Materials is best-positioned among equipment makers to capitalize on artificial intelligence, autonomous intelligent machines and future display technologies that facilitate a natural 3-D experience, Malik said.

Citi raised its price target and calendar 2019 earnings estimate for the company to reflect Applied Materials' wafer equipment outlook for 2019.

The Price Action

Lam Research shares were rallying 1.32 percent to $204.21 at the time of publication Monday. Applied Materials shares were up 1.1 percent at $55.44.

Related Links:

Tech ETF Tempts Again

Stifel: Alpha And Omega Semiconductor Shares Weighed Down By Operational Risks

Latest Ratings for AMAT

Jul 2018CitigroupMaintainsBuyBuy
Jun 2018RBC CapitalDowngradesOutperformSector Perform
May 2018Cowen & Co.Initiates Coverage OnMarket Perform

View More Analyst Ratings for AMAT
View the Latest Analyst Ratings

Posted-In: Atif Malik Citi DRAMAnalyst Color Upgrades Price Target Reiteration Analyst Ratings Best of Benzinga


Related Articles (AMAT + ASML)

View Comments and Join the Discussion!