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Why AMAT Stock Rose 5% despite Weak Q2 Results

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Applied Materials (NASDAQ:AMAT) stock gained around 5% in after-hours trading on Thursday following its second-quarter results. The company posted lower-than-expected results in the second quarter of fiscal 2020, which ended in April, amid COVID-19 uncertainty. However, the stock rose following reports that Taiwan Semiconductor Manufacturing Company (NYSE:TSM) plans to build a chip factory in Arizona.

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In the second-quarter earnings release, Applied Materials CEO Gary Dickerson said, “As we navigate the challenges created by COVID-19, we have rallied the company around safety, productivity and keeping our customers and the industry moving forward.” The report added, “While the situation remains fluid, based on the visibility we have today, our supply chain is recovering, and underlying demand for our semiconductor equipment and services remains robust.”

AMAT’s Q2 earnings results

In the second quarter, Applied Materials reported an adjusted EPS of $0.89 compared to $0.70 in the second quarter of fiscal 2019. The earnings missed analysts’ consensus estimate of $0.94 per share. AMAT generated revenue of $3.96 billion—growth of 11.8% from the second quarter of fiscal 2019. The company also missed analysts’ consensus revenue expectation of $4.13 billion.

In the second quarter, Applied Materials’ Semiconductor Systems segment’s revenues rose 17.5% YoY (year-over-year) to $2.57 billion. The company’s Applied Global Services segment’s revenues rose 3.5% YoY to $1.02 billion. Meanwhile, the Display and Adjacent Markets segment’s revenues rose 4.9% YoY to $365 million in the second quarter.

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Based on geography, AMAT generated most of its revenue from China and Taiwan. In the second quarter, the company’s revenue from China rose 14.6% YoY, while its revenue from Taiwan rose 29.6% YoY. The revenue from Korea rose 70.7% YoY. In contrast, AMAT’s revenues from the US, Japan, Southeast Asia, and Europe fell YoY during the same period.

In the second quarter, AMAT reported a free cash flow of $564 million compared to $682 million in the second quarter of fiscal 2019. The net cash provided by operating activities fell 20.6% YoY to $635 million in the second quarter. AMAT’s capital expenditures fell 39.8% YoY to $71 million in the second quarter. The company returned $193 million to shareholders in the form of dividends in the second quarter. As of Thursday, AMAT’s dividend yield was 1.62%.

Analysts’ recommendations for AMAT stock

Among the 28 analysts following AMAT stock, 21 recommend a “buy” and seven recommend a “hold.” None of the analysts recommend a “sell.” Wall Street analysts’ mean target price on the stock is $67.48, which implies a 24% gain from the current level of $54.43. The consensus target price for the stock has risen from $65.48 in April—growth of 3%.

Many analysts revised their target price for AMAT stock after its second-quarter earnings report on Thursday.

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  • KeyBanc decreased its target price from $86 to $76.
  • Mizuho decreased its target price from $65 to $62.
  • Susquehanna decreased its target price from $78 to $74.
  • Needham decreased its target price from $73 to $70.
  • Cowen and Company increased its target price from $60 to $72.
  • Stifel increased its target price from $65 to $75.
  • D.A. Davidson increased its target price from $50 to $55.
  • Wells Fargo increased its target price from $60 to $70.
  • B. Riley FBR upgraded the stock from “neutral” to “buy” and increased its target price from $56 to $72.

Peer comparison

AMD (NYSE:AMD) reported sales of $1.8 billion in the first quarter, which ended in March—a rise of 40.4% YoY. The company’s adjusted EPS rose 200% YoY to $0.18. In the first quarter of 2019, AMD reported sales of $1.27 billion and an adjusted EPS of $0.06. Analysts expected the company to post revenues of $1.78 billion and an adjusted EPS of $0.18 in the first quarter. Read Is AMD Stock a ‘Sell’ after Its Q1 Earnings? to learn more.

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Intel (NASDAQ:INTC) reported sales of $19.8 billion in the first quarter, which ended in March—a rise of 23.5% YoY. The company’s adjusted EPS rose 62.9% YoY to $1.45. In the first quarter of 2019, Intel reported sales of $16.1 billion and an adjusted EPS of $0.89. Analysts expected the company to post revenues of $18.7 billion and an adjusted EPS of $1.28 in the first quarter. Read Is Intel Stock a ‘Sell’ after Its Q1 Earnings? to learn more.

AMAT’s stock returns

AMAT stock rose 5.7% on Thursday and ended the day at $54.43. At this closing price, the company’s market cap is $50 billion. Notably, the stock is trading 21.6% below its 52-week high of $69.44 and 48.6% above its 52-week low of $36.64.

Based on the closing price on Thursday, AMAT stock was trading 6.4% above its 20-day moving average of $51.18. The stock is also trading 11.3% above its 50-day moving average of $48.92 and 1.8% below its 100-day moving average of $55.42. AMAT’s 14-day relative strength index number is 57. The number indicates that the stock isn’t oversold or overbought.

AMD, Intel, and Lam Research (NASDAQ:LRCX) also rallied on Thursday following the TSM news. The stocks rose 4.5%, 2.3%, and 8.4% respectively.

On Thursday, the Dow Jones Industrial Average rose by 377 points or 1.6%. Also, the S&P 500 and the Nasdaq Composite rose 1.15% and 0.9%, respectively.

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