Analyst Craig Ellis is one of Applied Materials’ (NASDAQ:AMAT) biggest bulls, and he is also Wall Street’s #1 analyst, according to analyst ranking service TipRanks. Investors who listened to Ellis over the past year have made 38% on their Ellis bets.
However, the top B.Riley FBR analyst cut his price target on Applied Materials to $70 (from $77), while keeping his rating at Buy.
Why? The chip equipment giant reported a solid April quarter with results comfortably exceeding expectations on all fronts, however, the positive results were marred by softer than expected guidance. Specifically, AMAT’s July-quarter revenue guide of $4.43 million came in below consensus of $4.53 million. The disappointing forecast predominantly reflects 1) lingering weakness in the high-end smartphone market, and 2) reductions in NAND capex assumptions.
Ellis commented, “We thought the multiple was justified as well above market revenue and EPS growth and inflection to powerful excess cash return were worthy of a multiple closer to a market average. However, YTD the market’s multiple has contracted and AMAT’s CY19 view now includes a meaningful Y/Y Display segment decline, even if the business is on track for FY20’s target model. To account for these items we reduce our target multiple from 16.5x to 15.0x and maintain a CY18 estimates which results in price target decrease from $77 to $70. We believe another stellar quarterly execution performance shows AMAT’s new product engine is firing on all cylinders and producing SAM expansion and share gains at surprisingly attractive margins. In our view AMAT’s growth story remains the most diversified in large cap Semi Caps, and we are encouraged with mgmt’s high-quality view through 2019.”
Most of the Street remains unfazed by cries of smartphone weakness, as TipRanks analytics exhibit AMAT as a Strong Buy. Out of 11 analysts polled in the past 3 months, 9 are bullish on Applied Materials stock while 2 remain sidelined. With a return potential of 38%, the stock’s consensus target price stands at $68.80.