Citi raises Applied Materials shares target on strong demand outlook

Citi raises Applied Materials shares target on strong demand outlook
Credit: © Reuters.

On Monday, Citi updated its stance on Applied Materials (NASDAQ: AMAT ) shares, increasing the price target to $250 from the previous $211, while reiterating a Buy rating.

The firm's decision follows Applied Materials' reported earnings per share (EPS) for the April quarter, which exceeded expectations by 9%, and guidance for the July quarter's EPS to be 6% higher than the Street's forecasts.

Applied Materials, which specializes in materials engineering solutions for the semiconductor industry, expressed confidence in the growing demand for gate-all-around (GAA) technology, anticipating sales to exceed $2.5 billion in 2024 with potential to double in 2025.

The company also forecasts its advanced packaging and high-bandwidth memory (HBM) sales to reach $1.7 billion and over $600 million, respectively, in 2024.

The firm anticipates that China's market conditions will stabilize to around 30% by the end of the year, with a normalized gross margin percentage of approximately 47% as spending in the rest of the world increases.

Additionally, the expansion of OLED technology into tablets and laptops is expected to bolster industry spending on displays, with some third-party projections indicating a significant rise in expenditure in 2025.

Citi's analyst noted that these factors could lead to further upside to the Street's 2025 estimates for Applied Materials. The price target was adjusted to reflect a 23 times price-to-earnings (P/E) ratio, up from the prior 20 times, to align with market multiples based on peak earnings expected in 2025.

The upcoming Semicon West conference was highlighted as the next major catalyst for the semiconductor industry. Adjustments to the firm's calendar year 2024 and 2025 EPS estimates were made, decreasing by 1% for 2024 and increasing by 1% for 2025, based on the mix in wafer fabrication equipment (WFE) spending.

InvestingPro Insights

Following Citi's optimistic update on Applied Materials ( NASDAQ :AMAT), the company's robust financial metrics and market position offer additional context for investors. The company boasts a substantial market capitalization of $176.22 billion, underscoring its significant presence in the semiconductor industry. With a P/E ratio of 24.38, the stock trades at a premium, reflecting investor confidence in its earnings potential, which is supported by 18 analysts who have revised their earnings upwards for the upcoming period, as per InvestingPro Tips.

Applied Materials has demonstrated a commitment to shareholder returns, having raised its dividend for 6 consecutive years and maintaining dividend payments for 20 years. This is indicative of the company's stable cash flows, which can sufficiently cover interest payments. Moreover, the company's stock has seen a high return over the last year, with a 68.5% price total return, signaling strong investor sentiment. For those seeking further insights and tips, InvestingPro offers additional information, with a total of 18 InvestingPro Tips available for Applied Materials, providing a comprehensive view of the company's financial health and market performance. To access these insights, use coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

As investors weigh Citi's revised price target and the company's growth prospects in GAA technology and advanced packaging, these InvestingPro metrics and tips offer a deeper dive into the financial and market dynamics at play for Applied Materials.

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