Why Applied Materials Analysts Are Largely Bullish After Q2 Earnings

Chip equipment maker Applied Materials, Inc. AMAT reported forecast-beating results for the fiscal year second quarter.

The Applied Materials Analysts: Morgan Stanley analyst Joseph Moore maintained an Equal-weight rating on Applied Materials shares and increased the price target from $137 to $139.

Credit Suisse analyst John Pitzer reiterated an Outperform rating and $175 price target.

Needham analyst Quinn Bolton reiterated a Buy rating and $153 price target.

Morgan Stanley On Applied Materials: Tight supply conditions resulted in stronger near-term spending conditions, helping Applied Materials outperform peers in the quarter, Morgan Stanley analyst Moore said.

While the company guided to continued wafer fab equipment, or WFE, growth through 2022, Morgan Stanley sees plateauing ahead in the second half of 2021, the analyst said.

"There is clearly a significant 'catch-up spend' this year which will at some point create tougher comparisons," he said. 

Applied Materials stock is trading at the midpoint of a roughly 30-point trading range in the last few months, Moore said, adding that the stock is likely to remain in that range. 

The stock is a core holding, but there is likely to be a lower fundamental bar elsewhere, with the company giving two years' worth of guidance, Morgan Stanley said.

Related Link: Why Applied Materials Is Needham's Top SemiCap Pick For 2021

Credit Suisse On Applied Materials: The better-than-expected second-quarter results and the strong third-quarter guidance are reflective of the rising cost of capacity without 450 mm, driving structural WFE growth, Credit Suisse analyst Pitzer said.

The company guided to calendar year 2021 WFE of $77 billion to $79 billion, and the combined 2021 and 2022 WFE guidance of over $160 billion implies 2022 WFE of $81 billion to $83 billion, the analyst noted.

Pitzer sees slowing EPS revisions in the second half of 2021 and WFE pauses in 2023 as risks. That said, structural underpinnings of over $100 billion in WFE and $11-plus EPS are becoming more certain, the analyst said.

Needham On Applied Materials: The strong quarterly results and the guidance for a sequential increase in third quarter results set the stage for about 40% year-over-year growth in Semiconductor Systems Group revenues in calendar year 2021, Needham analyst Bolton said.

Even as peers raised numbers this earnings season, premised on an increase in 2021 WFE outlook from the high $60 billion to high $70 billion range, Applied Materials has maintained its lead and relative outperformance, the analyst said.

The company still believes calendar year 2022 will be a mid- to high-single digit growth year given semiconductor industry megatrends, the analyst noted.

"We believe that AMAT's stock will find support at its current level of 16.8x our CY22 EPS estimate, and that the risk/reward is favorable." 

AMAT Price Action: At last check, Applied Materials shares were down 0.77% at $129.31.

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