On Friday, Citi analyst raised the price target for Applied Materials (NASDAQ:AMAT) shares to $250 from the previous $170, while reiterating a Buy rating on the stock.
The adjustment follows Applied Materials' reported earnings per share (EPS) for the April quarter, which exceeded expectations by 9%. The company has also provided guidance for the July quarter EPS to be 6% higher than Wall Street estimates.
Applied Materials' market commentary aligns with its industry peers, but the company has specifically expressed confidence in the increased demand for Gate-All-Around (GAA) technology in the second half of 2024.
The anticipated sales for this technology are projected to surpass $2.5 billion in 2024 and potentially double in 2025. Additionally, the company is forecasting sales in advanced packaging and High Bandwidth (NASDAQ:BAND) Memory (HBM) to reach $1.7 billion and over $600 million, respectively, in 2024.
The firm anticipates China's market conditions to stabilize, accounting for approximately 30% of Applied Materials' business by the end of the year. The normalization is expected to coincide with a gross margin percentage around 47% as spending in the rest of the world (ROW) increases.
The proliferation of OLED technology into tablet and laptop markets is also projected to bolster industry spending on displays, with some third-party projections indicating a sharp increase in 2025.
Citi's revised estimates for Applied Materials' calendar year 2024 and 2025 EPS reflect a slight decrease of 1% and an increase of 1%, respectively, due to changes in the Wafer Fabrication Equipment (WFE) mix.
The new price target of $250 is based on a 23 times price-to-earnings (P/E) ratio, which is an increase from the previous 20 times ratio, to align with market multiples on anticipated peak earnings in 2025. The upcoming Semicon West conference is identified as the next significant event that could influence the sector.
InvestingPro Insights
InvestingPro data shows that Applied Materials (NASDAQ:AMAT) has a market capitalization of approximately $177.84 billion, with a P/E ratio of 25.21, reflecting investor confidence in the company's earnings potential. Despite a modest revenue growth of 0.88% over the last twelve months as of Q1 2024, the company maintains a strong gross profit margin of nearly 47%. This aligns with the company's own gross margin forecast and is indicative of efficient operations and a competitive position in the industry.
Adding to the company's financial health, InvestingPro Tips highlight that Applied Materials has raised its dividend for 6 consecutive years, demonstrating a commitment to shareholder returns. Moreover, the company is a prominent player in the Semiconductors & Semiconductor Equipment industry, which is crucial given the increasing demand for advanced semiconductor technologies. With cash flows that can sufficiently cover interest payments and liquid assets exceeding short-term obligations, Applied Materials appears to be in a solid financial position to capitalize on market opportunities.
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