Goldman Sachs Says Applied Materials Could Be Good Relative Performer

According to Goldman Sachs, Applied Materials AMAT could be a good relative performer but cyclical risk remains. Goldman Sachs reported that it attended Applied Material's analyst day. “As we expected, the company left guidance unchanged. While we believe management's view that 2012 wafer fab equipment (WFE) spending will be flat yoy is too optimistic due to our expectation of excess foundry and logic supply, we did leave the meeting more positive on Applied's positioning in silicon and opportunity in display. Our key takeaways are: (1) Management's current expectation is that it can work around potential supply chain issues in Japan, with no material impact on its guidance. (2) The company believes 2012 WFE spending will be about flat yoy, with DRAM and higher capital intensity the drivers. (3) Applied gained 2% of 12” WFE share in 2010, and is targeting an additional 1% in 2011 driven in part by gains in inspection. Although we are more positive on Applied's overall product positioning, inspection is an area where we continue to expect the company to have challenges. (4) Management estimates that touch and high-performance panels will expand its display SAM by 40% in 2011, and we believe this will lead to better 2012 revenue performance than many semi cap peers. (5) The company has recognized LED revenue and is optimistic on its opportunity. (6) Applied raised its EPS target model slightly due to a lower tax rate. Our 12-month price target remains $16, based on 13X normalized EPS of $1.00, plus $3 per share in excess net cash.” Applied Materials closed yesterday at $15.16.