Wall Street Reacts To Applied Materials' Quarter

Applied Materials, Inc. AMAT shares were tumbling Friday following a disappointing earnings report. Here's what several Wall Street analysts had to say.

Foundry Woes

Memory and foundry uncertainty have clouded the near-term outlook for Applied Materials, Stifel analyst Patrick Ho said in a note.

Long-term investors should see the sell-off as a buying opportunity, the analyst said.

“While we anticipated a sharper recovery in its January quarter, we believe customer mix and timing of shipments are impacting Applied over the next two quarters relative to its peers." 

KeyBanc Capital Markets analyst Weston Twigg said Applied Material’s foundry business is a near-term headwind.

“We expect foundry capex to be up over 20 percent in 2019 due to: 1) TSMC's push-out of equipment deliveries into 2019; 2) the 7 nm ramp at Taiwan Semiconductor Mfg. Co. Ltd. (ADR) TSM and Samsung; and 3) continued expansion of lagging-edge capacity." 

Long-Term Upside

Applied Materials stock has near-term downside, but the long-term risk-reward balance is skewed to the upside, said Deutsche Bank analyst Sidney Ho.

“While skeptics will continue to question the idea of trough quarter and the rate of recovery, we believe the risk-reward of the stock is attractive at 10x our CY19E EOS and 12x trough EPS of $3.80 (based on annualized F4Q18 EPS guide)."

Morgan Stanley analyst Joseph Moore said a deteriorating memory market makes him cautious on Applied Material’s forecast, but solid memory cash flow mitigates some of the risk.

“We continue to see NAND as oversupplied,and see DRAM plateauing this quarter, with significant adjustments as supply catches up to demand,” the analyst said. 

Ratings, Price Targets

• Deutsche Bank maintained a Buy rating on Applied Materials and lowered its price target from $60 to $58. 
• Morgan Stanley maintained an Equal-weight rating and $54 price target.
• Stifel maintained a Buy rating and lowered its price target from $75 to $70. 
• KeyBanc maintained an Overweight rating and lowered its price target from $75 to $71. 

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Photo courtesy of Applied Materials.