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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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.
-
It's Time to Rethink What 'Aging Well' MeansDon’t fall into the trap of thinking there is a "right way" to age. Here's how to reframe aging in a healthy, achievable way.
-
Your Guide to Financial Stability as a Military SpouseThese practical resources and benefits can help military spouses with managing a budget, tax and retirement planning, as well as supporting their own career
-
3 Steps to Keep Your Digital Data Safe from CyberattacksAs data breaches and cyberattacks increase, it's vital to maintain good data hygiene and reduce your personal information footprint. Find out how.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
