Why Applied Materials' Solid Q3 Could Be Just the Beginning of Good Times Ahead

When Applied Materials Inc. (NASDAQ: AMAT) reported third-quarter fiscal 2020 results after markets closed on Thursday, the semiconductor manufacturing equipment maker posted adjusted diluted earnings per share (EPS) of $1.06 on revenues of $4.40 billion. In the same period a year ago, the company reported adjusted EPS of $0.74 on revenues of $3.56 billion. Third-quarter results also compare to the consensus estimates for $0.95 EPS on revenue of $4.18 billion.

The company reported that it returned $402 million to shareholders in the quarter ,comprised of $200 million in share buybacks and $202 million in dividend payments.

CEO Gary Dickerson was buoyant: “Applied is outperforming today and is positioned to grow faster than our markets over the next several years.”

Applied expects fourth-quarter sales of $4.40 billion to $4.80 billion and adjusted EPS in a range of $1.11 to $1.23. The consensus analyst estimates for the quarter call for EPS of $1.02 and sales of $4.37 billion. Applied did not offer full-year guidance, but analysts are looking for EPS of $3.81 and sales of $16.69 billion.

In general, semiconductor equipment companies like Applied have had a strong 12-month run, even including the mid-March collapse caused by the COVID-19 outbreak. On March 16, Applied traded down by a third for the year to date. At Thursday’s close, the stock traded up about 7.4% the year to date, and shares added another 4% in Friday’s premarket trading.

Dickerson expects the company’s growth over the past year to be continued next year, based on what Applied is “hearing from our customers.” That probably means new orders.

In Applied’s favor (and for the rest of the industry) the U.S. Congress introduced two new bills, one in the House and one in the Senate, that would pump $20 billion to $25 billion into rebuilding research and development in semiconductors and would incentivize companies to build new foundries here in the United States. The legislation probably won’t go anywhere now that election season looms, but no matter who ends up in the White House on January 20, the legislation likely will be reintroduced.

The stock traded near $67.30 in Friday’s premarket session, up 3.43%, in a 52-week range of $36.64 to $69.44. That’s a multiple of 18.5 times the consensus estimate for 2021 earnings. Applied pays a dividend of $0.88 annually (yield of 1.35% at Thursday’s closing price).