Applied Preview: Will It Miss?


Applied Materials, Inc. (AMAT) is set to report first quarter 2013 results on Feb 13. Last quarter it posted a 100% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Though Applied’s fourth quarter revenues were down year over year, the results exceeded management guidance owing to better-than-expected performance at the SSG segment. We believe Intel’s (INTC) Ultrabook partners and Microsoft’s (MSFT) Windows 8 adopters may have also helped demand.

The fourth quarter was very weak for Applied in terms of margin growth. Despite the company seeing some improvement in demand, the heavy expenditure incurred on the launch of new products and higher input costs impacted margins.

Though there is potential in the solar energy market over the long term, the company's solar division has taken longer than expected to reach profitability. The company posted weak results in the last quarter due to a sluggish macro environment. Given lower overall semiconductor equipment spending levels and lack of momentum in the solar energy market, we do not see much improvement in the company’s results in the near term.

Earnings Whispers?

The Zacks Consensus Estimate for the first quarter stands at 3 cents while that for fiscal 2013 stands at 54 cents.

Applied has beaten estimates in all of the last four quarters, with a trailing four-quarter average positive surprise of 42.90%. However, the stock has seen downward estimate revisions in the past 30 and 60 days.

The Zacks Consensus Estimate has remained unchanged for the first quarter as well as for 2013 over the last 60 days. But the Zacks Consensus Estimate has gone down by almost 70% and 27.0%, respectively for the first quarter and fiscal 2013 over the last 90 days.

The downward pressure on estimates signals a weak first quarter despite a 100.0% positive surprise in the last quarter. Moreover, the stock carries a Zacks Rank #3 (Hold).

We caution against stocks with a Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Our model states that astock needs to have both a positive earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, #2 or #3 to beat earnings estimates. You could, therefore, consider other stocks instead like: 

Autodesk Inc. (ADSK), with an ESP of +15.79% and a Zacks Rank #2 (Buy).

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