Applied Material: Zacks’ Bull of the Day Play

Semiconductor sector has been one of the best performing sectors this year. It is up about 35%, handily beating the broader technology sector’s return of 14.8% and S&P 500’s return of 12.5%. Even after the election, this sector has continued to outperform the broader technology space, which has been impacted by concerns related to Trump’s trade and immigration policies.

About the Company

Headquartered in Santa Clara, CA, Applied Material (AMATResearch Report) is a leading equipment supplier to the global semiconductor industry. They have been the industry leader for over twenty years. Their equipment is mainly used in the manufacturing of semiconductors, flat panel liquid crystal displays (LCDs), and solar photovoltaic (PV) cells and modules.

Impressive Results and Raised Guidance

The company reported its fiscal fourth quarter results on November 17. Adjusted earnings of 66 cents per share beat the Zacks Consensus Estimate of 65 cents and came in at the higher end of the guidance. Revenues were however slightly shy of the consensus.

The management raised the guidance. They now expect net sales to be in the range of $3.20 billion to $3.34 billion (up about 45% year over year) and non-GAAP adjusted earnings to be in the range of $0.62 to $0.70 per share (up about 154% year over year).

The company has an excellent record of beating estimates. They have missed only once in the past five years.


APPLD MATLS INC Price and EPS Surprise


Surging Estimates

After strong results, analysts have been raising their estimates for the company. Rising estimates sent the stock to a Zacks Rank # 1 (Strong Buy).

Multiple Growth Drivers

According to the management, major market drivers that will continue to drive growth in the coming years are leading edge foundry in logic, 3D NAND, patterning, advance display in China.

The company continues to gain market share in the semiconductor market. Additionally, in the past few years, the company has successfully diversified its business which is no longer PC demand driven. Additional demand drivers have emerged in the areas of big data, Internet of Things (IoT), cloud infrastructure, artificial intelligence, virtual reality and self-driving cars.

One new and fast growing area of the business is equipment used to produce organic light-emitting diode, or OLED, displays. According to a WSJ report, Apple is planning to use an OLED display from Samsung Electronics Co. for its next iPhone.

OLED displays are reported to be much better than traditional LCD panels. This would be great for the company which is key supplier Samsung’s huge chip-fabrication business.

The Bottom-Line

Shares of this company are up more than 71% this year but despite this surge, they are still trading at an attractive valuation of 13.46 times forward earnings. The stock looks pretty good in terms of Industry/Sector Rank and Style Scores.

Zacks Industry Rank for “Semiconductor Equipment – Wafer Fabrication” is currently 4 out of 265 (top 2%). The stock has Zacks Style Score of “A” for Growth and “B” for Value and Momentum, resulting in a VGM Score of “A”.

Now, which stocks should you sell?

As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500. See all Zacks Strong Sells and Strong Buys absolutely free >>.

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