Strong DDR3/DDR4 (memory) prices are helping Micron Technology (MU) hold its yearly highs, but investors should look instead at Applied Materials (AMAT). The company will report quarterly earnings on November 17 after the market closes.
Applied Materials is getting no credit these days for its huge consensus beat last quarter. The stock trades at a forward P/E of just 12.9 times. Debt is at a manageable 0.49x equity. Already, Goldman Sachs reiterated its “conviction buy” ranking for AMAT. Goldman thinks AMAT will earn $2.80 per share in FY 2019. This is based on Applied Materials expecting WFE increasing 3 percent in 2017.
In August, the company attributed the move to 10-nanometer technology as one of the reasons driving growth. Advances in both display and semiconductor assure AMAT will deliver growth for years to come. NAND spending increased 7 points from the company’s 2012 baselie. The growth is sustainable, thanks to the high differentiation on the materials the company engineers.
Spending on R&D is not slowing down. Applied grew its technologist and engineering head count by 50 percent, a move that benefited its customers.
Applied’s service business is a high margin one and it is growing. In the third quarter, AMAT grew the unit at record levels.
Takeaway
Applied Materials is not just a semiconductor company. It is also a display supplier, set to record more than $1 billion in revenue in fiscal 2016. If semi and display both outpace expectations, AMAT’s stock will trade sharply higher.
