Craig-Hallum initiates coverage of Applied Materials, Inc. (NASDAQ:AMAT) with a Buy rating...

Craig-Hallum initiates coverage of Applied Materials, Inc. (NASDAQ:AMAT) with a Buy rating and $30 PT

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Applied Materials, Inc. (NASDAQ:AMAT) has had its stock coverage initiated by analysts at Craig-Hallum Capital Group. The analysts have launched coverage of the stock with a Buy rating and 12-month price target of $30. It seems to the Craig-Hallum analysts that Applied Materials has a huge growth and profitability opportunity ahead.

 

Part of the reason Craig-Hallum is bullish on the prospects of Applied Materials, Inc. (NASDAQ:AMAT) is that it expects the company to benefit from technology upgrades in the semiconductor industry. In particular, the firm predicts that the shift to 3D NAND from the planar model and the shift to 10nm production process bode well for Applied Materials.

 

The management of Applied Materials, Inc. (NASDAQ:AMAT) has an ambitious target to grow EPS by 50-100% over the next few years. Not only does Craig-Hallum see the target achievable, but also believes it is beatable thanks to a number of favorable factors.

 

Transition to 3D NAND

Craig-Hallum notes that Applied Materials has been working to improve its products over the last three years. As such, the firm believes that the company is well-positioned to take advantage of the transition to 3D NAND memory technology from the planar model. According to Craig-Hallum, just about 10% of wafer production capacity has upgraded to 3D NAND architecture. As such, Applied Materials’ disruptive technology should enable it to gain share and boost topline growth. Craig-Hallum estimates that 20% topline improvement would lead to $0.54 EPS boost.

 

Shift to 10nm

As chip manufacturers continue to upgrade their production processes to 10nm systems, Applied Materials stands to benefit immensely from the trend, partly because the company dominates the big foundry market.

Besides equipment sales, Craig-Hallum also sees Applied Materials, Inc. (NASDAQ:AMAT) gaining from service revenues, thus boosting its overall revenues and profitability.

Shares repurchases

Applied Materials, Inc. (NASDAQ:AMAT) anticipates its tax rate to decline to 17.5% from 19.3% in the next three years. The drop in tax rate should have a favorable impact on the company’s bottom-line. Additionally, Craig-Hallum sees continued share repurchases driving EPS boost. The company has already spent about $1.3 billion of its $3 billion April buyback authorization. The balance should help it reduce its outstanding share count by another 7.6%, thus boosting EPS.

With all the favorable factors considered, Craig-Hallum believes Applied Materials, Inc. (NASDAQ:AMAT) is ripe for buying.

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