Evaluating Applied Materials (AMAT) Stock Ahead of Q3 Earnings

Applied Materials AMAT shares have surged 60% since the market’s March lows, as investors pile into semiconductor stocks and tech for their ability to expand during the coronavirus economic downturn. With this in mind, let’s dive into one of the last big S&P 500 tech names left to report its quarterly earnings results, which are due out on Thursday, August 13.

The Quick Story…

Applied Materials is a leading semiconductor equipment company and boasts that its materials engineering solutions are “used to produce virtually every new chip and advanced display in the world.” The firm is part of a strong and vital space within the chip industry, alongside peers like Lam Research LRCX, Taiwan Semiconductor Manufacturing Company TSM, and others.

AMAT executives expect to benefit from the continued expansion of the big data, AI, and more. Applied Materials is also focused on figuring out what’s next as classic Moore's law scaling slows.

This is why the firm has focused on what it calls the new playbook for semiconductor design and manufacturing, which includes five main elements: “New architectures, new devices and 3D structures, new materials, new ways to shrink the feature geometries, and new ways to connect chips together.”

 

 

 

 

 

 

 

 

 

 

 

AMAT fell short of our second quarter earnings and revenue estimates. Nonetheless, its adjusted earnings jumped 27% last quarter, on 12% higher revenue.

Like many firms, Applied Materials executives didn’t provide guidance at the time, yet they remained upbeat. CEO Gary Dickerson said in prepared remarks that “based on the visibility we have today, our supply chain is recovering, and underlying demand for our semiconductor equipment and services remains robust.”

As we mentioned at the top, AMAT stock is up roughly 60% since March 23 to match the tech sector. Despite the run, the stock rests just below its 52-week highs. This could potentially give it some room to run as many other tech firms have soared to new highs in recent weeks.

Meanwhile, AMAT trades at a discount against tech—as it has for much of the past three years—at 3.4X forward 12-month sales vs. 4.2X right now. And if we jump back over the past five years, AMAT shares have soared 260%, compared to tech’s 100%—with much of that expansion coming between 2015 and 2018.

Bottom Line

Peeking ahead, our Zacks estimates call for AMAT’s adjusted third quarter earnings to jump 28% to $0.95 per share, on 18% stronger sales that would see it reach $4.20 billion.

AMAT currently rocks “B” grades for both Value and Growth and an “A” for Momentum in our Style Scores system. The company’s 1.38% dividend yield is a nice bonus and crushes the 10-year U.S. Treasury’s 0.56% and falls not too far behind the S&P 500’s average.

Interested investors should note that its next quarterly dividend is payable on September 10 to shareholders of record as of August 20.

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