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Applied Materials Reports In Line; Guidance Disappoints

Shares of chip equipment and display maker Applied Materials, Inc. (NASDAQ: AMAT – $34.39) are giving back some of yesterday’s gains after reporting final 2018 quarterly results. Adjusted earnings per share increased to a fourth period record of $0.97 from $0.93 a year earlier and matched the average estimate of analysts. Revenue increased to $4.01 billion, also in line with Street views. The company’s adjusted operating margin, however, took a hit in the period to 26.6% of sales vs. 28.7% last year. For the full-year AMAT earned $4.45 per share compared to fiscal 2017’s tally of $3.25. Net sales in the company’s largest segment – Semiconductor Equipment – declined about 5% from a year ago, while its Applied Global Services business rose nearly 18% along with a 4% rise in the Display and Materials unit.

       However, for the first quarter of 2019, management now projects adjusted profit of $0.75 to $0.83 a share on $3.56 billion to $ 3.86 billion in revenue, compared with consensus of $0.92 a share on revenue of $3.94 billion. Near-term market headwinds remain in the semiconductor space, although overall industry spending remains robust according to a company statement. Applied may not make more than $3.50 per share this year, but at current prices the valuation is compelling at about 9.4 times earnings. And fiscal 2020 may return to more normal levels with Street expectations of $4.79 per share. The 2.3% dividend yield also helps while we wait this one out. Therefore, AMAT positions within the volatile semiconductor equipment space can be maintained for long-term recovery.

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