Applied Materials (AMAT) is scheduled to announce Q1 earnings results on Thursday, and investors will watch out for the company’s semiconductor system revenue growth and its strategy to diversify revenue streams amid China export restrictions.
Wall Street expects the semiconductor equipment maker to post an EPS of $2.21, implying a 7.1% decline year-over-year, while revenue is expected to decline 4% to $6.88B for the quarter.
During its Q4 earnings call, the company guided for Q1 revenue of $6.85B, plus or minus $500M, and non-GAAP EPS of $2.18, plus or minus $0.20. The firm forecasted Semiconductor Systems revenue of around $5.025B and AGS revenue of around $1.52B.
However, the company expects wafer fab equipment spending in China to be lower, as it is not anticipating significant changes to market restrictions.
Earlier this month, Morgan Stanley reiterated its Overweight rating on AMAT and increased its price target to $364 from $273, expecting the company to surpass consensus estimates in its Q1 results.
However, the brokerage firm highlighted that Applied Materials needs to demonstrate it is not “undergrowing” in the wafer fabrication equipment market.
“We’re OW as we don’t think AMAT will materially undergrow WFE anymore, as ICAPS ceases to be a significant drag and China DRAM comps ease, but the stock is still priced for underperformance vs. WFE,” Morgan Stanley analyst Shane Brett said.
Wall Street analysts and Seeking Alpha analysts are also bullish on the company and rated it as a Buy.
Seeking Alpha analyst Andres Veurink rated AMAT a Buy due to fair valuation, strong recurring revenues, and resilient industry positioning ahead of the next earnings report.
Veurink added that AMAT’s Semiconductor Systems segment drives growth, while the Applied Global Services segment provides stable, high-margin, recurring revenue supporting capex and buybacks. However, he warned about the geopolitical risks, especially China export restrictions.
On the other hand, Seeking Alpha’s Quant System is cautious and rated it a Hold.Over the last two years, AMAT has beaten EPS estimates 100% of the time and has beaten revenue estimates 88% of the time.
Over the last three months, EPS estimates have seen 19 upward revisions against six downward moves, while revenue estimates have seen 16 upward revisions, compared with eight downward.
The company’s stock has gained over 28% in the past year, compared to the 1% rise in the broader S&P 500 Index.