Applied Materials Posts Blowout Quarter; Shares Gain 5%

Shares of Applied Materials popped 5.3% on Friday after the semiconductor equipment vendor reported better-than-expected 1Q results. Additionally, the company forecasted 2Q guidance that topped the Street’s estimates.

Applied Materials (AMAT) reported adjusted earnings of $1.39 per share, which beat analysts’ estimates of $1.28 per share and jumped 42% year-over-year, driven by top-line growth and improved gross and operating margins.

Its 1Q revenues grew 24% year-over-year to about $5.16 billion and came in marginally ahead of the consensus estimates of $4.97 billion. The company’s CEO Gary Dickerson said, “In our first fiscal quarter, we’ve seen a continued acceleration of demand in our semiconductor business as major macro and industry trends fuel increasing consumption of silicon across a wide range of markets and applications.”

As for 2Q, the company expects to generate revenues in the range of $5.19-$5.59 billion, with the midpoint of $5.39 billion coming in higher than analysts’ expectations of $4.96 billion. Applied Materials anticipates 2Q earnings in the range of $1.44-$1.56 per share, compared to consensus estimates of $1.28. (See Applied Materials stock analysis on TipRanks)

Following the stellar results, Susquehanna analyst Mehdi Hosseini raised the stock’s price target to $132 (10.5% upside potential) from $106 and maintained a Buy rating.

In a note to investors, Hosseini said, “We have increased our P/E and EBITDA multiples due to incremental confidence on higher than expected TAM [total addressable market] opportunities in 2021, sustainability of share gains and prudent cost controls, all while FCF [free cash flow] margin is expected to remain above 20%. Such FCFs are then expected to help fund capital returns and future accretive acquisitions.”

Overall, the rest of the Street has a bullish outlook on the stock, with a Strong Buy consensus rating based on 19 Buys and 3 Holds. The average analyst price target of $133.95 implies upside potential of about 12% to current levels. Shares have skyrocketed over 85% over the past year.

Furthermore, AMAT scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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