Applied Materials beats Q1 expectations and forecasts strong Q2; analyst flags rising backlog

Investing.com -- Applied Materials Inc (NASDAQ: AMAT) beat expectations and provided a stronger-than-expected forecast for the first quarter.

Its shares rose 0.5% in pre-market trading and are up 18% so far this year.

Applied Materials said first-quarter revenue rose 7%, to $6.74 billion. Adjusted earnings per share of $2.03 beat the expectation for $1.93 a share. Analysts were expecting revenue for the quarter of $6.69B.

Applied Materials supplies equipment, services and software for the making of semiconductors. The chip industry has been in a slump after a drop-off in demand for PCs and other devices that run on chips, and amid inventory gluts at many chip makers.

“While the economy and semiconductor industry are facing challenges in 2023, Applied Materials delivered strong first quarter results, and we believe Applied is well positioned to outperform our markets this year,” said CEO Gary Dickerson. “Our resilience is underpinned by our strong positions with leading customers at key technology inflections, large backlog of differentiated products and growing service business.”

Of the revenue in the quarter, $5.16B came from semiconductor systems.

In the second quarter of fiscal 2023, Applied said it expects net sales to be approximately $6.4B, plus or minus $400 million. The outlook includes ongoing supply chain challenges and a negative estimated impact of $250 million dollars related to a cybersecurity event recently announced by one of our suppliers, the company said in a press release.

It forecast adjusted EPS for the second quarter in the range of $1.66 to $2.02. Analysts were forecasting second-quarter adjusted EPS of $1.76 on revenue of $6.29B.

Stifel analyst Brian Chin raised the price target to $140 per share on the Buy-rated AMAT stock. The analyst highlighted the backlog growth.

"Even we under-appreciated the significance of trailing-edge demand within Applied’s own backlog, which offset incremental logic/memory weakness a lot more than we anticipated. How backlog normalization translates into Applied’s revenue trend in the backhalf is subject to interpretation, but the punchline is the same – the largest semicap company is poised to handily outperform the industry this year," Chin said in a client note.

Goldman Sachs analyst Toshiya Hari also hiked the price target as he went to $120 from the prior $105.

"Looking ahead, we expect the key debate on the stock to be centered around the ICAPS (IoT, Communications, Automotive, Power and Sensors) business - a segment in which Applied has above-average market share - and whether strength in the near-term will sustain beyond CY2023. We increase our CY2023/24 operating EPS estimates, on average, by 17%," Hari wrote.

By Liz Moyer and Senad Karaahmetovic

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