Applied Materials excellent second quarter

Ticker: AMAT

Author: Stock Analyst  Date: 2021/05/21

Applied Materials, one of the world's leading manufacturers of semiconductor chip and display equipment, released a strong report for its fiscal 2Q2021 ending May 2, which reflected continued strong global semiconductor equipment demand. Revenue increased 41.1% YoY to a record $ 5.58 billion on better results across all business units and beat the $ 5.39 billion consensus forecast. The rise in revenue was driven by strong sales in China. South Korea, Europe, USA and Southeast Asia, which was somewhat offset by weaker sales in Taiwan and Japan. Semiconductor Systems revenue climbed 57.4% to $ 3.97 billion, driven primarily by the strong performance of its silicon wafers and integrated logic business. Revenue in the Applied Global Services segment rose 18.2% to $ 1.20 billion, and revenue in the Display segment increased 2.7% to $ 375 million. Adjusted EBITDA jumped 74.8% to $ 1.87 billion, and profit margins EBITDA expanded by 6.4 pp to 33.4%. Adjusted earnings per share soared 83.1% to a record $ 1.63, 12 cents above the Wall Street analyst average. The results for the first 6 months of 2021 fiscal years also look very decent.

Applied Materials' balance sheet remains strong - the company completed its second financial quarter with $ 6.77 billion in cash and short-term investments with $ 5.45 billion in long-term debt. In the reporting period, the company generated operating cash flow of $ 1.19 million (an increase of 86. 9% (YoY)), directed $ 204 million for capex and returned $ 952 million to its shareholders through share buybacks and dividend payments.

Applied Materials management also released very optimistic forecasts for the third financial quarter, which ends in July. The company expects to earn $ 1.70-1.82 per share (up 66% (YoY) from the midpoint of the range) on revenue of $ 5.72-6.12 billion (up 35% (YoY)) ...

We maintain a positive outlook on Applied Materials stock with the expectation that the company will continue to benefit from the growth of the global semiconductor industry in general and the chip equipment segment in particular. The importance of technology in the modern world is increasing every year, and the coronavirus pandemic has only intensified this trend. The driver of further growth in demand for semiconductor chips should be the deployment of 5G communication networks in the world, as well as such rapidly developing areas as artificial intelligence, processing of large amounts of data (big data), machine learning, cloud computing, virtual / augmented reality and autonomous cars. ...

Against this backdrop, investment by global semiconductor corporations in equipment upgrades is expected to continue to grow at a rapid pace. And Applied Materials, given the company's strong position in the industry, should remain one of the main beneficiaries of the trends described above and continue to increase its market share. Note that Applied Materials spends significant funds on research and development, which allows it to maintain its technological leadership. At the same time, we expect that the company will remain friendly to its shareholders and will continue to devote significant funds to share buybacks and dividends.

We have a Buy recommendation for Applied Materials with a mid-term target price of $156.70, which implies 20.3% upside from the current level.