Given how strong the earnings beat was for the last quarter and how big the increase in guidance was for the next quarter from Applied Materials (AMAT) after the market close last night (February 18) today’s stock gain of 5.19% was actually rather modest.
For the first quarter of the company’s 2021 fiscal year, Applied Materials reported a 24% increase in sales to a record $5.2 billion. (Wall Street analysts had been looking for revenue of $4.97 billion.) Non-GAAP earnings per share climbed 42% to $1.39. The Wall Street consensus had projected non-GAAP earnings of $1.28 a share.
For the fiscal second quarter the company guided to revenue of $5.37 billion to $5.41 billion (against the Wall Street consensus of $4.97 billion) and to earnings per share of $1.44 to $1.56 (against the Wall Street consensus of $1.28.)
I added Applied Materials to my Jubak Picks Portfolio on January 14, 2021. The shares are up 12.9% since that date.
The blow out quarter and the increased guidance for the next quarter shouldn’t be a surprise given the big increase that chip makers are announcing to their capital budgets. Foundry leader Taiwan Semiconductor has forecast record spending on new chip making equipment. DRAM makers have also announced big increases and for the fiscal first quarter Applied Materials reported that DRAM equipment sales were up 43% year over year. NAND equipment sales grew even faster at 88%.
Besides surging sales growth, Applied Materials also reported impressive adjusted gross margins of 45.9% and operating margins of 29%. Those margins beat the five year average gross margin (at 43.78%) and the five year average operating margin (at 23.83%.)
As of today, February 19, I’m raising my target price on Applied Materials in my Jubak Picks Portfolio to $144 from the prior $120 a share.