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."

Author:: Jake Lynch
Publish date:: Apr 1, 2010 7:50 AM EDT

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.