Chipmakers shop at Applied Materials. The Santa Clara, Cal., company makes tools that produce, etch, measure and inspect circuit patterns on computer chips. Its business succeeds or fails based on the demand for chips. Ben Pang, an analyst with Prudential Equity Group, expects rapid earnings growth at the company into 2007 as the worldwide appetite for cell phones, flat-panel TVs and personal computers swells. Pang on Tuesday upgraded the stock (symbol AMAT) from neutral to "overweight."
Applied Materials is a jack of all trades when it comes to chip-making gear. It is the largest equipment maker and has the broadest line of products. But last year, the company lost market share to competitors. Only recently has Applied Materials been able to stop the bleeding with better products and an expansion into new markets, Pang says. Orders in the quarter ended April 30 were $2.5 billion, up 60% from a year earlier. Net income rose to $413 million, or 26 cents per share, from $305 million, or 18 cents per share, in the year-earlier quarter. That beat the 23 cents per share analysts expected the company to earn in that period, according to Thomson First Call. Chief Executive Michael Splinter forecasts that total sales will grow 20% to 25% this year.
Side businesses should help Applied Materials generate more earnings growth, Pang says. In May, the company said it would buy Applied Films Corp., a solar-panel equipment maker, for $464 million. It also launched a joint venture with Dainippon Screen Manufacturing to make tools -- called "track" -- used in advanced chip manufacturing. Market researcher Gartner Dataquest estimates that the market for track systems will grow to $2 billion by 2008, from $1.4 billion last year.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Last month's shopping spree has not tapped out Applied Materials. In fact, the company is flush with cash. It had $3.3 billion as of April 30, which gives the company the flexibility to pay dividends, repurchase shares or invest more in new businesses. The cash stash, says Pang, also means that when chip orders sag, as they inevitably will at some point, Applied Materials will weather the downturn better than its smaller rivals.
Pang says the stock, recently $16, looks attractively priced at 12 times his profit estimate of $1.29 per share for the 2007 calendar year. He set a 12-month target price of $21. The stock is down 71% from its 2000 high of $57.50.
-
Could Elon Musk Be Paying Your Social Security Check?Musk now has access the US Treasury payment system, which handles Social Security payments. Will your check be on time? Will your data be safe?
-
The DeepSeek Crash: What It Means for AI InvestorsDeepSeek's R1 model represents both risk and opportunity. Here's what DeepSeek means for AI investors.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
