Sunday, 3 March 2024


Applied Materials stock target raised by analyst as ‘consensus is makeable’ By

Applied Materials to Establish Collaborative Engineering Center in India

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On Monday, B.Riley maintained a Buy rating on Applied Materials (NASDAQ:) and increased the price target to $220 from the previous $175. The firm’s outlook for the company is positive, citing manageable consensus estimates and the potential for modest sales outperformance.

We believe consensus $6.483B (-3.8%)/$1.90 is makeable with modest upside potential to sales ~$13M above the midpoint on good fulfillment execution, while at-guidance EPS has modest COGS and/or opex mgt upside,” said B.Riley in a note.

The firm’s analysis suggests that Applied Materials’ early quarter segment views are reasonably set, with expected sales in the Semiconductor Systems Group (SSG) ranging from mid-single-digit to high-single-digit growth to $4.50 billion. This is despite some ongoing weakness in China’s DRAM and ICAPS sectors. Meanwhile, the Applied Global Services (AGS) segment may see a slight decline of 2% to $1.43 billion, with a cautious outlook for leading-edge Foundry, Logic, and Memory.

Gross margin (GM) is anticipated to decrease by approximately 30 basis points to 47.0% due to volume, with long-term targets of 48.5% considered achievable. Operating cash flow (OCF) and free cash flow (FCF) are projected to be $1.5 billion and $1.0 billion, respectively, with a portion expected to be allocated to a $6.0 billion share buyback program.

The consensus estimate for the company’s performance is a revenue of $6.336 billion, a 2.3% decrease, and earnings per share (EPS) of $1.80. This outlook factors in modest headwinds from China’s DRAM sector but also potential tailwinds from high-bandwidth memory (HBM)-related DRAM and Advanced Packaging (NYSE:), as well as stable ICAPS.

Comparatively, industry peers have provided varied guidance, with Lam Research Corporation (NASDAQ:) indicating flat quarter-over-quarter performance and Tokyo Electron (TEL) projecting an increase in the low single digits. However, KLA Corporation (KLAC) reported a mid-single-digit slip due to a delay in fab start-up shipments. B.Riley expects Applied Materials’ GM to improve by 40 basis points to 47.4% due to favorable product mix, while operating expenses are managed tightly to achieve a 28.6% operating margin.

In terms of industry forecasts for the full year, while Lam Research recently estimated a $88 billion market, Tokyo Electron set a higher expectation of $100 billion on February 8. B.Riley anticipates a market size closer to…

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