Shares of Applied Materials AMAT have soared nearly 90% in 2019 to outpace fellow high-flying chip stocks Nvidia NVDA and Micron MU. The semiconductor equipment firm topped Q4 fiscal 2019 Wall Street estimates in November and provided upbeat guidance ahead of what looks to be a strong 2020 for the chip industry.
The tech-heavy Nasdaq hit 9,000 for the first time ever on Thursday, as all three major U.S. indexes continue to climb to new highs as we head into 2020. This positivity comes on the back of a tentative phase one U.S.-China trade deal, along with some better-than-expected economic indicators from both of the world’s two largest economies.
Plus, the Fed is expected to keep interest rates low in 2020 and corporate earnings growth is poised to return after a down year in 2019. More importantly for Applied Materials, the semiconductor market is expected to bounce back in terms of top and bottom-line growth after a rough year for the historically cyclical chip market.
Applied Materials is a leading semiconductor equipment company. The firm is poised to grow for years to come, as its offerings are vital for chips and advanced displays, which are key cogs in our ongoing technological revolution.
Going forward, AMAT executives are confident that it will thrive in the big-data and AI age. Plus, as we mentioned at the top, Applied Materials beat our Q4 estimates in mid-November and raised its first-quarter fiscal 2020 guidance, as part of industry-wide demand recovery.
AMAT shares are up big in 2019 and they have also climbed 24% in the last three months and 6% in the last four weeks. Applied Materials stock currently rests near its 52-week highs at over $61 per share.
The company has also returned value to shareholders through buybacks. Overall, the firm returned roughly $3.2 billion to shareholders through dividends and share repurchases during its most recent fiscal year.
AMAT’s dividend currently yields 1.37%. This comes in above the likes of Microsoft MSFT and Apple AAPL and looks stronger given AMAT’s 87% climb in 2019.
AMAT is part of our Semiconductor Equipment - Wafer Fabrication industry that ranks No. 2 out of over 250 Zacks industries at the moment. Applied Materials is also trading at 16.3X forward earnings, which marks a discount compared to its industry’s 25.4X average that includes Lam Research’s LRCX 19.4X.
Our current Zacks estimates call Applied Materials sales to surge 14% in 2020 to reach $16.65 billion. This would represent a solid comeback after 2019’s decline and roughly match 2018’s top-line figure. Peeking further ahead, AMAT’s fiscal 2021 sales are projected to jump another 7.3% higher to hit $17.86 billion.
At the bottom end of the income statement, Applied Materials adjusted earnings are projected to jump 24% in 2020, with 2021 expected to come in another 14.4% higher. Investors will also see just how much better the firm’s earnings outlook appears.
Applied Materials is a Zacks Rank #1 (Strong Buy) right now, based on its longer-term positive earnings revision activity. And investors looking for a semiconductor stock for 2020 might want to consider AMAT given its outlook, some of its other fundamentals, and its industry’s strength.
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