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Applied Materials Cut to Neutral; Catalyst Lacking, New Street Says

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AMAT’s valuation ‘is still very reasonable,’ New Street says. ‘But we don’t see a near-term catalyst for a rerating.’

Applied Materials  (AMAT) – Get Applied Materials, Inc. Report shares fell Tuesday after New Street Research downgraded the semiconductor-equipment titan to neutral from buy on “tactical” concerns.

Applied Materials’ valuation “is still very reasonable” based on the iShares Semiconductor ETF  (SOXX) – Get iShares PHLX Semiconductor ETF Report index, New Street said, according to Barron’s.

“But we don’t see a near-term catalyst for a rerating. We maintain our strong positive long-term conviction, but tactically downgrade to neutral,” affirming its $140 target price.

Applied Materials recently traded at $135.50, down 5.1%. The SOXX ETF slid 2.8%, as technology shares suffered amid anticipation of interest-rate tightening by the Federal Reserve.

Applied Materials has soared 65% year to date, compared with 24% for the SOXX ETF. Over the past 12 months the gains are 144% versus 60%.

Morningstar analyst Abhinav Davuluri puts fair value at $131 for Applied Materials.

“Wide-moat Applied Materials reported fiscal-third-quarter results above management’s guidance, while guiding fiscal-fourth-quarter revenue above our expectations,” he wrote in a commentary last month.

“We note Applied and its peers have all called for strong growth in 2021, driven by record capital expenditure levels at TSMC  (TSM) – Get Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR Report and Intel  (INTC) – Get Intel Corporation (INTC) Report as well as solid memory spending.”

Further: “Management expects fourth-quarter sales to be $6.3 billion at the midpoint, with semiconductor systems group sales at $4.6 billion, services at $1.3 billion, and display at $400 million,” Davuluri said.

“We think the firm is poised to maintain a solid growth trajectory into 2022 … and expect the company to experience solid growth over the long term.”

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