Applied Materials stock (AMAT) is being traded on heavy volume today. The question the market has is whether this should be traded higher or lower. At the time of this writing Applied Materials stock is down less than 1%, but volume is up 5 fold. This is because the market is digesting the just reported earnings, and it is apparent that the Street is unsure how to value Applied Materials stock here. Nevertheless, it seemed to us to be a good quarter. Let us discuss:
First, lets here from Gary Dickerson, president and CEO. He stated:
“Fiscal 2017 was a record-breaking year for the company. We have great momentum and we’re confident that in 2018 we can deliver strong double-digit growth across our semiconductor, display and service businesses. This is the most exciting time in the history of the electronics industry. AI will transform entire industries over the coming years, creating trillions of dollars of economic value, and Applied is uniquely positioned to deliver the innovative materials needed to enable next-generation memory and high-performance computing.”
So how were the actual numbers that are moving, or aren’t moving, Applied Materials stock? Well, compared to the fourth quarter of fiscal 2016, Applied grew net sales by 20 percent to $3.97 billion. On a GAAP basis, the company reported gross margin of 45.0 percent; operating income of $1.10 billion; and earnings per share (EPS) of $0.91. On a non-GAAP adjusted basis, year over year, the company increased gross margin by 2.5 points to 46.2 percent, grew operating income by 37 percent to $1.14 billion or 28.7 percent of net sales, and increased EPS by 41 percent to $0.93.
Applied Materials stock and the company also had a strong year. In fiscal 2017, Applied grew net sales by 34 percent to $14.54 billion. On a GAAP basis, the company recorded gross margin of 44.9 percent, operating income of $3.87 billion, and EPS of $3.17. On a non-GAAP adjusted basis, year over year, the company increased gross margin by 2.9 points to 46.1 percent, grew operating income by 73 percent to $4.05 billion or 27.9 percent of net sales, and increased EPS by 86 percent to $3.25. Year-end backlog was $6.03B (+32% Y/Y) while cash and equivalents were $5B.
Finally, we should point out that the company generated $3.61 billion in cash from operations, paid dividends of $430 million and used $1.17 billion to repurchase 28 million shares of common stock at an average price of $42.08.
While shares are up heavily this year, there may be room to run.
KeyBanc raises its Applied Materials stock price target from $59 to $67 and maintains an Overweight rating.
Analyst Weston Twigg cites the positive earnings release and semiconductor and display equipment demands that will remain strong into 2018.
Upside Q1 guidance has net sales from $4B to $4.2B (consensus: $3.97B) and EPS from $0.94 to $1.02 (consensus: $0.91).