Applied Materials (AMAT) Price Target Increased By Davidson

Applied Materials’ (NASDAQ:AMAT) price target was recently increased by more than 12% to $36 from $32 by investment firm, Davidson.

In addition, the share price hit a new 52-week high of $30.15 on Aug 23, eventually closing at $29.95. The company returned 12.5% in the past one-year period and has added approximately 21.4% year to date.

Why the Hike?

Analysts at Davidson remain optimistic about Applied Materials’ market dominance in the semiconductor space.

They cited strong fiscal third-quarter earnings as one of the reasons for the price hike. Both orders and earnings per share reached 15-year highs, while the operating margin reached a five-year high. Pro forma earnings of 50 cents exceeded the Zacks Consensus Estimate by 3 cents and were on the higher end of the guided range.

Also, revenues increased 15.1% sequentially and 13.3% year over year to $2.82 billion. Moreover, total orders were also 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 solid guidance for the upcoming 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, Davidson increased its 2016 and 2017 earnings estimates to $1.74 and $2.15 from $1.50 and $1.85 per share, respectively.

With its sustained focus on growth areas, sound fundamentals and strength within the semi space, analysts at Davidson remain positive about the company’s success in the future.

Conclusion

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

The company has an impressive record of returning cash to its shareholders through share buybacks and regular dividend payouts. In the third quarter, the company used $196 million to repurchase shares 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-over-year growth.

The Zacks Rank #1 (Strong Buy) company’s solid market position in China, expansion in display, continued innovation and strong long-term growth potential position it well.

Other 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) carrying a Zacks Rank #2 (Buy).