Why Applied Materials Is A Great Growth Stock For 2018

Shares of Applied Materials (NASDAQ:AMAT) surged over 5% on Wednesday to inch closer to their 52-week high as the company gets off to a hot start in the New Year, following a stellar 2017.

Now, as AMAT starts 2018 with a bang, investors might consider buying this Silicon Valley firm positioned to keep on growing as AI and the Internet of Things become more prevalent than ever.

What AMAT Does

Applied Materials is one of the world’s largest suppliers of fabrication equipment to semiconductor, LCD, and solar PV cell manufacturers. The company was founded in 1967 and went public in 1972.

The Santa Clara, California-based firm is currently divided into four major divisions: Silicon Systems, Applied Global Services, Display, as well as Corporate and Other. The company also boasts a venture capital leg, Applied Ventures LLC.

Most Recent Quarter

The company closed its fiscal 2017 on a high note. Applied Materials posted record quarterly revenues of $3.97 billion in Q4, which marked a 20% year-over-year jump. On top of this outstanding top-line growth, the tech power saw its bottom-line expand by 63% from the year-ago period to reach $0.91 per share.

For the full fiscal year, Applied Materials’ sales soared 34% to reach $14.54 billion. The company posted full-year earnings of $3.17 per share and an operating income of $3.87 billion.

“We have great momentum and we’re confident that in 2018 we can deliver strong double-digit growth across our semiconductor, display and service businesses,” CEO Gary Dickerson said in a statement.

“This is the most exciting time in the history of the electronics industry. AI will transform entire industries over the coming years, creating trillions of dollars of economic value, and Applied is uniquely positioned to deliver the innovative materials needed to enable next-generation memory and high-performance computing.”

Fundamentals

Applied Materials is currently a Zacks Rank #2 (Buy) and sports an overall “B” VGM grade.

In terms of value, which can sometimes be missing at these multibillion-dollar tech firms, the company is currently trading at just 13.50x earnings. This marks a discount compared to the S&P 500 average, as well as the “Semiconductor Equipment – Wafer Fabrication” average. Applied Materials’ P/S and P/B ratios also both come in below its industry’s average.

The company’s 2017 success can be attributed in large part to its traditional semiconductor business, which is expanding due to important design wins in the CVD and PVD tools markets. Applied Materials also stands to benefit as industries shift from LCD to OLED.

Maybe more importantly, the firm grew its NAND business last year, driven by growth in cloud computing as a whole. Going forward, Applied Materials should be able to bolster its NAND semiconductor business further as big data and the Internet of Things become the norm and artificial intelligence continues to develop.

Applied Materials’ current cash flow growth rate of 68.11% more than doubles the industry average and should help it invest in new technologies and industries on the rise, such as AI.

Looking ahead to the first quarter of fiscal 2018, the company is expected to see its sales surge 25.16% year-over-year to hit $4.10 billion, based on our current Zacks Consensus Estimates. For the upcoming full year, Applied Materials is projected to see its revenues reach $16.90 billion, which would mark more than 16% growth over its record-setting 2017.

Investors might be even more impressed by the company’s EPS growth projections. Applied Materials is expected to see its Q1 2018 earnings soar by nearly 45% while its full-year earnings are projected to pop by 24.31%. And the last time Applied Materials failed to match or beat earnings estimates was 2014.

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