Applied Materials (AMAT) Target Raised to $200 at Lynx Equity Strategies; 'The Street Missed the Forest for the Trees'

November 23, 2021 7:40 AM EST
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Price: $130.15 -4.01%

Rating Summary:
    25 Buy, 8 Hold, 2 Sell

Rating Trend: Down Down

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    Up: 19 | Down: 13 | New: 24
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Lynx Equity Strategies analysts KC Rajkumar and Jahanara Nissar raised their price target on Applied Materials (NASDAQ: AMAT) to $200 from $140, saying the Street 'missed the forest through the trees.'

The analyst commented:

"In focusing on the earnings miss and the supply chain issues, we think the Street may have missed the incrementally bullish multi-year view CFO Bob Halliday provided at the AMAT earnings event last week. Having provided a view for a steady pace of progress stretching out to 2024, we believe the earnings call may have been bullish enough for us to believe that the stock needs to re-rate. Ever since the Investor Day in April, the stock has been stuck in neutral at the $140 level. The $85B WFE outlook for 2024 provided at the April event capped upside to the stock; the view implied down years of WFE ahead. At the earnings cc last week thought, in our view, that problem was swept away by carefully laid out comments by the CFO.

In addition to explicit guidance, the CFO provided subtle color in his qualitative commentary, we believe has gone unappreciated. We infer from CFO comments: 1) Semi Systems revenue in Fy22 to grow ~20%, 2) AGS revenue in Fy22 to grow ‘strong double digits’, significantly more bullish than the 12% explicit guidance, 3) Cy21 WFE raised to $85B vs. previous $80B, Cy22 WFE guided up 10% vs. previous view of merely “up”, 4) Cy23 WFE implied to grow from the Cy22 level and 5) the base case for Cy24 WFE moved up from $85B to $100B.

The CFO provided several specificities that leads us to conclude that there is no down year in WFE and AMAT revenues now thru 2024. This is a very different take-away from outlook provided in April. Street’s fear of peaking revenue, which has held back the stock, should be swept aside in our view. The confidence CFO exhibited should allow investors to base stock valuation on EPS estimates in outyears, rather than next year. Based on our Fy24 eps estimate, we are raising our price target to $200 from our earlier $140. We would be buyers of the stock at current levels."

The firm is modeling Fy22 at $27B/$8.2 rev up 17%, Fy23 at $29B/$9.4 revenue up 8% and Fy24 $32.7B/$11 revenue up 12%

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