In the fourth quarter (ended October 27), Applied Materials reported non-GAAP EPS of $0.80, 5% above Wall Street’s estimate of $0.76, and in line with its own guidance. The company has beaten analysts’ EPS estimates for the past four quarters. However, on a GAAP basis, its EPS fell more than 2.5% YoY (year-over-year) to $0.75 due to higher operating expenses in the quarter.
Earnings growth drivers in AMAT’s fourth quarter
In the fourth quarter, Applied Materials’ $500 million share repurchase boosted its bottom line. Its adjusted operating margins and adjusted gross margins surpassed its estimates. However, both margins narrowed in the quarter. The company’s adjusted gross margin contracted by 150 basis points YoY to 43.8% due to flat revenue growth. Meanwhile, increased operating costs narrowed its operating margin by 140 basis points YoY to 23.7%.
Positive Q1 outlook
In fiscal 2020’s first quarter, Applied Materials expects strong demand to boost its non-GAAP EPS by 7%–17% YoY to $0.87–$0.95. The company’s estimate is 17%–28% higher than Wall Street’s estimate of $0.74. In Applied Materials’ fiscal 2019 fourth-quarter earnings call, CFO Daniel Durn said, “In summary, I like this setup for Applied as we enter fiscal 2020. Our thesis surrounding IoT, Big Data, and AI is being validated throughout the ecosystem and our business outlook is transitioning from positive leading indicators to growing demand.”
Current stock performance
Applied Materials stock rose 4% after its earnings release yesterday, and that optimism seems to have spread across the sector. Positive US-China trade news seems to be supporting the semiconductor sector today as well. AMAT stock has soared more than 8% today, while competitors KLA (KLAC), Lam Research (LRCX), and Teradyne (TER) have risen 1.3%, 3.6%, and 1.9%, respectively.
Applied Materials stock, on its way to an all-time high, has returned more than 89% year-to-date. It was flat in early November. As of November 15, the company’s market capitalization was over $57 billion.