A month has gone by since the last earnings report for Applied Materials, Inc. AMAT . Shares have lost about 1.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Applied Materials Beats on Q2 Earnings and Revenues
Applied Materials reported strong second-quarter fiscal 2017 results, with both the top and the bottom line surpassing our estimates.
The company's pro-forma earnings per share (EPS) of 79 cents beat the Zacks Consensus Estimate by almost 4% and came in toward the higher end of the guided range.
Applied Materials reported revenues of $3.5 billion, up 8.2% sequentially and a massive 44.7% year over year. Revenues beat the Zacks Consensus Estimate by a slight margin and were within the guided range of $3.45 to $3.60. The year-over-year revenue growth was backed by higher demand in the U.S., Europe, Taiwan, Korea, and Japan, partially offset by lower demand in Southeast Asia and China.
Revenues by Segment
The Silicon Systems Group (SSG) contributed 68% of revenues, up 11.8% sequentially and 51.5% year over year.
The second-largest contributor was Applied Global Services (AGS) with 20% revenue share. Segment revenues were up 7.1% sequentially and 11.7% year over year.
The Display segment was down 7.3% from the last quarter but up a massive 134.1% from the year-ago level, contributing 11% to revenues.
The corporate segment contributes just 1% to revenues and was up 11.1% sequentially.
Revenues by Geography
Korea contributed 27% to revenues, Taiwan 24%, China 21%, U.S. 11% and Japan 9%. Europe contributed 5%, while Southeast Asia contributed 3%.
Southeast Asia and Europe were the weakest, declining 39.8% and 18.4%, respectively, on a sequential basis. China, the U.S. and Korea were up 46.7%, 9.7% and 6%, respectively. All the other regions decreased from the previous quarter.
Applied Materials generated pro-forma gross margin of 46.3%, up 91 basis points (bps) sequentially and 362 bps from the year-ago quarter.
Applied Materials' adjusted operating expenses of $654 million increased 3% from the last quarter and 13.7% from the year-ago quarter. Operating margin of 27.8% increased 184 bps sequentially and 865 bps year over year.
On a pro-forma basis, Applied Materials reported net income of $861 million, or 79 cents per share compared with $732 million or 67 cents in the prior quarter. In the year-ago quarter, Applied Materials had reported net income of $376 million or 34 cents per share.
Our pro-forma calculation excludes restructuring, acquisition-related, impairment and other charges as well as tax adjustments in the reported quarter.
On a fully diluted GAAP basis, the company recorded net profit of $824 million (76 cents per share) compared with $703 million (65 cents per share) in the previous quarter and $320 million (29 cents per share) a year ago.
At the end of fiscal second quarter, inventories increased to $2.61 billion from $2.28 billion in the previous quarter. Accounts receivables increased to $2.38 billion from $2.37 billion in the prior quarter.
Cash and short-term investments balance was $4.94 billion compared with $3.49 billion in the prior quarter. Goodwill was 18.3% of the total assets.
The company generated $898 million in cash from operations. The company spent $77 million on capex and returned $390 million through stock repurchases and cash dividends to shareholders.
Applied Materials also provided guidance for the third quarter of fiscal 2017. Revenues are expected between $3.60 and $3.75 billion. Non-GAAP EPS is expected to come in the range of 79 to 87 cents.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been eight revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 21.7% due to these changes.
Applied Materials, Inc. Price and Consensus
Applied Materials, Inc. Price and Consensus | Applied Materials, Inc. Quote
At this time, Applied Materials' stock has an average Growth Score of 'C', however its Momentum is doing a bit better with an 'A'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We expect above average returns from the stock in the next few months.
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