4 Reasons Credit Suisse Thinks Applied Materials' (AMAT) Target Model is Conservative
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Credit Suisse analyst John Pitzer reiterated an Outperform rating and $175.00 price target on Applied Materials (NASDAQ: AMAT) after attending the company's analyst day where management established FY24 target Rev/EPS under 3 WFE scenarios ($75 bn, $85bn $100 bn) of $23.4-$31.0 bn and $7.00-$10.00; with a base case of $26.7bn/$8.50 vs. CY22 Street of $23.7 bn/ $6.73. Shares retreated but the analyst thinks the guidance is conservative for 4 reasons:
1) No WFE intensity increase
2) Assumes only ~1 ppts of share gain despite the increasing need for integrated solutions
3) Only 30 bps OpM upside from base to high end of range
4) Share count of 875 mm or 54 mm (~$7.5 bn) lower despite accumulative FCF ~$18+ bn and target to return 80-100% FCF
He stated "The target model has multiple vectors of upside more INLINE with our preview of $10+ EPS and closer to $11 EPS - $100 bn WFE, 22.5% share, 35% OpM and 80% Cash return. While target model was a bit light, AMAT delivered on key fundamental benchmarks: (1) Rising cost of capacity, (2) Growing strategic importance of capacity, and (3) AMAT’s ability to drive WFE share and Subscription Rev. Reiterate Outperform and $175 PT."
Shares of Applied Materials closed at $140.30 yesterday.
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