Applied Materials (AMAT): Earnings Expectations and Strategies

Applied Materials, Inc. (AMAT) is scheduled to report its first-quarter results on February 15. Wall Street expects the company to post lower earnings and revenue over the prior-year quarter. In this piece, I have discussed why it could be wise to buy the stock now.

For the first quarter, AMAT’s EPS and revenue are expected to decrease 6.1% and 3.8% year-over-year to $1.91 and $6.49 billion, respectively. The company has a stellar earnings history, having beaten the consensus EPS estimate in each of the trailing four quarters.

AMAT ended fiscal 2023 on a strong note as it reported record revenue, earnings, and cash flow. The company distributed $3.16 billion to shareholders, including $2.19 billion in share repurchases and $975 million in dividends. AMAT’s President and CEO Gary Dickerson said, “Applied Materials delivered record revenue, earnings and cash flow in fiscal 2023 and is outgrowing the wafer fabrication equipment market for the fifth year in a row.”

“Applied’s broad product portfolio, strong customer relationships and leadership at major technology inflections put us in a great position to profitably grow the company as powerful trends fuel the semiconductor industry’s expansion in the years ahead,” he added.

For the first quarter of fiscal 2024, AMAT forecasted its net sales to be approximately $6.47 billion, plus or minus $400 million. Its non-GAAP adjusted EPS is expected to be between $1.72 and $2.08. The company’s Semi Systems revenue is expected to be approximately $4.7 billion, given the strength in trailing-edge DRAM.

Its AGS revenue for the first quarter is expected to be $1.46 billion, and display revenue is expected to be approximately $235 million. In addition, its non-GAAP gross margin is expected to be approximately 47%, and its non-GAAP operating expenses are expected to be around $1.23 billion.

During the first quarter, AMAT and Ushio, Inc. announced a strategic partnership to accelerate the industry’s roadmap for heterogeneous integration (HI) of chiplets into 3D packages. The strategic partnership combines AMAT’s leadership in large panel processing with Ushio’s leadership in lithography for packaging.

AMAT pays a $1.28 per share dividend annually, which translates to a 0.69% yield on the current share price. Its four-year dividend yield is 0.95%. The company’s dividend payouts have grown at CAGRs of 11.93% and 11.75% over the past three and five years, respectively. AMAT will pay a quarterly dividend of $0.32 per share on March 14, 2024.

AMAT’s stock has gained 59.8% over the past nine months and 61.7% over the past year to close the last trading session at $185.54.

Here’s what you might want to consider ahead of its upcoming earnings release:

Robust Financials

AMAT’s net sales for the fiscal fourth quarter ended October 29, 2023, came in at $6.72 billion. Its cash provided by operating activities increased 81.4% year-over-year to $1.56 billion. The company’s adjusted gross profit rose 2.3% over the prior-year quarter to $3.18 billion. In addition, its adjusted net income increased 2.6% year-over-year to $1.79 billion. Also, its adjusted EPS came in at $2.12, representing an increase of 4.4% year-over-year.

For the fiscal year ended October 29, 2023, AMAT’s net sales increased 2.8% year-over-year to $26.52 billion. Its cash provided by operating activities increased 61.1% year-over-year to $8.70 billion. The company’s adjusted gross profit rose 3.3% over the prior-year period to $12.41 billion.

In addition, its adjusted net income increased 0.7% year-over-year to $6.80 billion. Also, its adjusted EPS came in at $8.05, representing an increase of 4.5% year-over-year.

Mixed Analyst Estimates

Analysts expect AMAT’s EPS and revenue for fiscal 2024 to decline 4.4% and 1.3% year-over-year to $7.70 and $26.18 billion, respectively. Its fiscal 2025 EPS and revenue are expected to increase 16.9% and 10.2% year-over-year to $9 and $28.86 billion, respectively.

Mixed Valuation

In terms of forward non-GAAP P/E, AMAT’s 24.10x is 9.2% lower than the 26.53x industry average. Likewise, its 20.96x forward EV/EBIT is 0.2% lower than the 21x industry average.

However, its 2.36x forward non-GAAP PEG is 13.6% higher than the 2.08x industry average. Also, its 9.47x forward Price/Book is 122.5% higher than the 4.26x industry average.

High Profitability

In terms of the trailing-12-month net income margin, AMAT’s 25.86% is significantly higher than the 2.23% industry average. Likewise, its 30.81% trailing-12-month EBITDA margin is 242.1% higher than the industry average of 9.01%. Furthermore, the stock’s 4.17% trailing-12-month Capex/Sales is 76.4% higher than the industry average of 2.36%.

POWR Ratings Show Promise

AMAT has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMAT has a B grade for Quality, consistent with its high profitability. It has a C grade for Value, in sync with its mixed valuation.

AMAT’s stock is trading above its 50 and 200-day moving averages, justifying its A grade for Momentum.

AMAT is ranked #14 out of 90 stocks in the Semiconductor & Wireless Chip industry. Click here to access AMAT’s Growth, Stability, and Sentiment ratings.

Bottom Line

AMAT is trading above its 50-day and 200-day moving averages of $160.41 and $144.21, respectively, indicating an uptrend. Despite the macroeconomic and geopolitical headwinds and softness in demand for consumer electronics, AMAT’s long-term growth prospects look solid as demand for semiconductors is expected to remain robust.

Moreover, the company is expected to benefit from the rapid expansion of the wafer fab equipment market, and its broad portfolio of products and solutions will enable it to outperform its peers. Furthermore, its robust services business is anticipated to boost its subscription revenues.

Given its robust financials, stable dividend payments, and high profitability, it could be wise to buy the stock now.

How Does Applied Materials, Inc. (AMAT) Stack Up Against Its Peers?

While AMAT has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) or B (Buy)-rated stocks within the Semiconductor & Wireless Chip industry: Everspin Technologies, Inc. (MRAM), Photronics, Inc. (PLAB), and Cirrus Logic, Inc. (CRUS). To explore more Semiconductor & Wireless Chip stocks, click here.

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AMAT shares were trading at $180.11 per share on Tuesday afternoon, down $5.43 (-2.93%). Year-to-date, AMAT has gained 11.13%, versus a 3.98% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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