Applied Materials Upgraded to Buy at Deutsche Bank on Earnings Upside

Deutsche Bank also raised its price target on shares of Applied Materials to $72.
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Applied Materials  (AMAT) - Get Report was rising in premarket trading Monday after the stock was upgraded to buy by analysts at Deutsche Bank who see an upside to both consensus earnings estimates and valuation multiples.

Deutsche analyst Sidney Ho also raised the stock's price target to $72 a share from $60. The price target represents a potential upside of 20% from the stock’s closing price on Friday of $60.25. Applied Materials shares were up 1.33% to $58.76 Monday.

Ho is bullish on the company’s water fab equipment business as spending in the segment has been robust in recent quarters.

Applied Material’s pending acquisition of Kokusai, which is expected to close in fiscal 2021, will help the company earn $5.25 a share in the year, according to Deutsche Bank, well ahead of Wall Street’s consensus estimates of $4.39.

Deutsche Bank reached its price target based on those expected earnings with a historical average earnings multiple of 13.5x.

“We see upside to both Bloomberg consensus EPS estimates and valuation multiples,” Ho wrote, while also saying that the stock “offers the best risk-reward among large cap names in the space.”

Last month, analysts at Nomura boosted Applied Materials price target to $75 from $68 a share with a buy rating. The firm is bullish on the benefits from a cyclical rebound in global wafer-processing equipment sales in 2020.

Applied Materials is on a strong bull run over the past 12 months, rising more than 50% over that time period.