On Monday, Deutsche Bank (ETR:DBKGn) adjusted its outlook on Applied Materials (NASDAQ:AMAT), reducing the price target to $170 from the previous $200, while maintaining a Hold rating on the stock. Currently trading at $169.35, Applied Materials has seen significant volatility, with a 28% decline over the past six months. The revision follows a reassessment of the wafer fabrication equipment (WFE) market dynamics, which are anticipated to be volatile into 2025. According to InvestingPro data, the company maintains a "GOOD" overall financial health score despite market challenges.
The bank's analyst noted that the WFE environment experienced a mixed performance in 2024 and is expected to continue facing challenges. The updated forecast for the calendar year 2025 (CY25E) WFE now suggests a flat year-over-year performance, a revision from the previously expected 5% growth. The change reflects various industry factors, with a majority posing negative impacts. Despite these challenges, 14 analysts have revised their earnings upwards for the upcoming period, as revealed by InvestingPro's analysis.
The analyst highlighted the uncertainty within the semiconductor capital equipment sector, indicating a wide range of potential outcomes for CY26E WFE, estimated between $94 billion and $117 billion. This variability emphasizes the importance of careful selection when investing in this sector, given the difficulty in assessing risk/reward profiles in the current cycle.
Aligned with the revised WFE outlook, Deutsche Bank has also adjusted its company-specific forecasts for Applied Materials and its peers. Revenue estimates for Applied Materials, KLA Corporation (KLAC), and Lam Research Corporation (NASDAQ:LRCX) are now approximately 2-5% below the consensus on the street. The valuation methodologies have been updated to base on CY26E earnings per share (EPS), rather than CY25E EPS.
While the bank continues to prefer KLA Corporation, which holds a Buy rating and a price target of $725, it maintains Hold ratings on Applied Materials and Lam Research until there is greater clarity on the timing and magnitude of a broader cyclical recovery in the sector. With a P/E ratio of 19.67 and strong profitability metrics, including a 47.46% gross margin, Applied Materials presents an interesting case for investors. For deeper insights into Applied Materials' valuation and growth prospects, including additional ProTips and comprehensive analysis, check out the full research report available on InvestingPro.
In other recent news, KLA Corporation's target price was reduced to $725 from the previous $750 by Deutsche Bank, though the firm maintained a Buy rating on the company. This adjustment reflects a more cautious outlook for the Wafer Fabrication Equipment (WFE) market extending into 2025. Despite the downward revisions, Deutsche Bank continues to favor KLA Corporation within the U.S. semiconductor capital equipment sector due to its perceived resilience in a challenging market.
Morgan Stanley (NYSE:MS) adjusted its stance on Applied Materials, downgrading the company's stock rating from Equalweight to Underweight and revised its price target downwards to $164 from the previous $179. This downgrade reflects concerns over the near-term operating environment for Applied Materials' key end-markets. Despite these concerns, the company is expected to see robust growth throughout 2023-24.
Applied Materials maintained its business outlook for the first quarter of fiscal 2025, despite new semiconductor technology export regulations. This sentiment is supported by 14 analysts who have recently revised their earnings expectations upward. The company's recent financial results indicate an annual revenue of $27.2 billion, with non-GAAP earnings per share rising by 7.5% to $8.65.
TD Cowen adjusted its outlook on Applied Materials, reducing the price target to $230 from $250, while maintaining a Buy rating on the shares. The firm's analyst cited a mix of operational strengths and market challenges influencing this decision. Despite these challenges, the analyst remains positive on Applied Materials' prospects.
Lastly, Wolfe Research adjusted its outlook on Applied Materials, reducing the stock's price target from $260 to $230, while continuing to recommend the stock as Outperform. This revision reflects a reevaluation based on recent earnings estimates adjustments. Despite this reduction, Wolfe Research maintains a positive view on the company's prospects.
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