It's been a pretty great week for Applied Materials, Inc. (NASDAQ:AMAT) shareholders, with its shares surging 11% to US$62.06 in the week since its latest full-year results. Results were roughly in line with estimates, with revenues of US$15b and earnings per share of US$2.86. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from Applied Materials's 20 analysts is for revenues of US$16.5b in 2020, which would reflect a notable 13% increase on its sales over the past 12 months. Earnings per share are expected to soar 27% to US$3.67. In the lead-up to this report, analysts had been modelling revenues of US$15.6b and earnings per share (EPS) of US$3.35 in 2020. So there seems to have been a moderate uplift in analyst sentiment following the latest results, given the upgrades to both revenue and earnings per share forecasts for next year.
With these upgrades, we're not surprised to see that analysts have lifted their price target 19% to US$65.73 per share. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic Applied Materials analyst has a price target of US$80.00 per share, while the most pessimistic values it at US$49.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. We can infer from the latest estimates that analysts are expecting a continuation of Applied Materials's historical trends, as next year's forecast 13% revenue growth is roughly in line with 14% annual revenue growth over the past five years. Compare this with the wider market, which analyst estimates (in aggregate) suggest will see revenues grow 7.1% next year. So although Applied Materials is expected to maintain its revenue growth rate, it's definitely expected to grow faster than the wider market.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Applied Materials following these results. Fortunately, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider market. Analysts also upgraded their price target, suggesting that analysts believe the intrinsic value of the business is likely to improve over time.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Applied Materials going out to 2022, and you can see them free on our platform here.
It might also be worth considering whether Applied Materials's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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