Applied Materials: A 'Show-Me Story'

Sell-side analysts are mixed on Applied Materials despite Tuesday's sales revisions. TheStreet's stock model rates it "hold."
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BOSTON (TheStreet) -- Applied Materials (AMAT) - Get Report has risen 25% in the past year, trailing the benchmark S&P 500 Index.

But the chipmaker may get a boost after it raised its sales forecast Tuesday. It now expects 2010 revenue to increase 60%, up from 50%. Still, researchers are mixed on the stock, with an equal number rating it "buy" and "hold."

Piper Jaffray

(PJC) - Get Report

and

GC Research

expect the stock to hit $22, leaving a potential 60% gain. But a rebound isn't that clear cut.

Applied Materials swung to a fiscal first-quarter profit of $83 million, or 6 cents a share, from a loss of $133 million, or 10 cents, a year earlier. Revenue increased 39% to $1.8 billion. The gross margin widened from 35% to 43% and the operating margin climbed from negative territory to 12%. Cash grew 12% to $2.2 billion, 10 times as much as its debt load.

Management expects silicon revenue to more than double in 2010, making it the fastest-growth product category. Display sales are expected to rise 50%. Energy and environmental solutions, encompassing the solar business, is projected to expand 5%. LCD flat-panel sales are rebounding as emerging-market consumers upgrade to new televisions. China flat-panel TV sales doubled in 2009.

Appled Materials increased its dividend 17% and announced a $2 billion stock buyback when it reported quarterly results. The shares currently yield 2.1%, more than semiconductor peers. The stock trades at a price-to-projected-earnings ratio of 13 and a price-to-sales ratio of 3.3, reflecting 25% and 23% discounts to semiconductor industry averages.

Barclays

(BCS) - Get Report

is unimpressed with the recent upward revisions, citing "no concrete plans to drive Sunfab growth." It views "potential M&A as more of an overhang than a driver of optimism" and calls Applied Materials a "show-me story." It updated its profit and sales estimates to reflect new guidance, but is maintaining an "equal weight" rating on the stock. Applied Materials' largest holders appear restless.

Fidelity Investments

, which owns 13% of shares outstanding, and

Capital World Investors

, which controls a 4.6% stake, decreased their holdings in the fourth quarter. However, other large shareholders, including

State Street

(STT) - Get Report

,

BlackRock

(BLK) - Get Report

and

JPMorgan

(JPM) - Get Report

, purchased more shares.

TheStreet's

equity model, which ranks stocks based on fundamentals and performance, rates Applied Materials "hold."

Among semiconductors,

TheStreet's

three favorite stocks, all of which receive "buy" ratings, are

Cree

(CREE) - Get Report

,

NVE Corp.

(NVEC) - Get Report

and

Altera

(ALTR) - Get Report

. The model turned bullish on

Marvell Technology

(MRVL) - Get Report

last week, lifting its rating to "buy" due to impressive quarterly numbers and stock performance. Industry giant

Intel

(INTC) - Get Report

also garners a "buy" rating and receives the highest financial strength score in the industry, 9.9 out of 10.

-- Reported by Jake Lynch in Boston.