Applied Materials (AMAT) Hits 52-Week High On Strong Q3

Shares of Applied Materials, Inc. (NASDAQ:AMAT) hit a new 52-week high of $30.15 on Aug 26, eventually closing at $29.97. The company returned 87.4% in the past one-year period and has added approximately 60.5% year to date. Average volume of shares traded over the last three months was roughly 12,986K.

What is Driving Applied Materials?

Applied Materials is one of the world’s biggest suppliers of fabrication equipment to semiconductor, LCD and solar PV cell manufacturers. Strength in sales in mobility platforms, as well as in TV capacity builds, with better utilization of resources and increased WFE spending are the major positives for the company.

The price appreciation can be attributed to Applied Materials’ strong fundamentals and better-than-expected third-quarter fiscal 2016 results reported on Aug 18. In response to its strong earnings recorded, the stock has gained 8.3%.

In the fiscal third quarter, Applied Materials reported earnings of 50 cents per share, surpassing the Zacks Consensus Estimate by 3 cents. Also, revenues increased 15.1% sequentially and 13.3% year over year to $2.82 billion. Moreover, total orders were up 26% year over year. Backlog for the quarter increased 60% year over year to $4.95 billion.

The growth was backed by the transition of memory market to 3D NAND and foundries to 10 nm (nanometer) and 7 nm nodes. Also, China’s entry into the semiconductor manufacturing space and the increased adoption of OLED (organic light-emitting diode) by smartphones and TVs led to the growth.

Applied Materials provided a promising guidance for the fiscal fourth quarter. Revenues are expected to increase 15–19 percentage points sequentially. Non-GAAP EPS is expected to come in the range of 61 cents to 69 cents, far exceeding Wall Street expectations of 44 cents per share.

Also, Applied Materials has an impressive record of returning cash to shareholders through share buybacks and regular dividends payouts. In the third quarter, the company used $196 million for share repurchase and paid $108 million as dividends.

Moreover, the company has well-differentiated products and high market share. Also, it is efficiently delivering key enabling technology to logic and foundry customers. The company is doing very well on the service front and has witnessed 10 consecutive quarters of year-on-year growth.

Additionally, Applied Materials delivered an average positive earnings surprise of nearly 5.05% over the trailing four quarters. The Zacks Rank #1 (Strong Buy) company’s undisputed, strong market position in China, proliferation in display, continued innovation and solid long-term growth potential position it well.

Stocks to Consider

Some other well-placed stocks in the same space are Silicon Laboratories Inc. (NASDAQ:SLAB) , sporting a Zacks Rank #1, and Intel Corp. (NASDAQ:INTC) and Inphi Corporation (NYSE:IPHI) , each carrying a Zacks Rank #2 (Buy).