IB Net Payout Yields Model

What Was Applied Materials Thinking?

Applied Materials (AMAT) spent the last year convincing people of a new normal in the semiconductor space, but the December guidance suggests the cyclical sector hasn't changed at all.

- Downside Q1 guidance has revenue of $3.56B to $3.66B (consensus: $3.98B) and EPS of $0.75 to $0.83 (consensus: $0.93; -25% Y/Y at midpoint).

Consensus was for a revenue decline so it wasn't like the market expected great quarterly numbers from AMAT. The odd part was the decision of the BOD to spend $751 million during the quarter on share repurchases. Any company expecting to miss estimates by such a wide margin should not be loading up on stock buybacks.

The question here is whether the cycle has further downside. AMAT still expects solid profits so now isn't the time to runaway, but its too early until after Thanksgiving to even think about chasing the after-hours dip to $32. Lets see where AMAT trades on Friday.

11/16 9:15am Update

Analysts are out bullish on a bottom in AMAT. Still too early to enter the semi. equipment space. Gotta wait until after Thanksgiving to see where the stock bottoms out. Easy to see whether the stock hits new lows at $30.50 here before getting exciting about a business that might not turnaround until 2H19.

- Per Bloomberg, Citi defended the stock and added it to the "semis shopping list" while Evercore said shares are "closing in on a bottom"

11/16 5:00pm Update

AMAT closed positive on the day raising the possibility that the stock has already reached bottom. Considering the company hasn't even printed a negative sales growth quarter yet, this case doesn't appear plausible. Lets see how the stock trades next week. Look for more detailed research to be published on Seeking Alpha early next week.
Disclosure: No position mentioned. Please review the disclaimer page for more details. 


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