Brian, From Chase H&Q today. Jeff
<<
"....The balance sheet reflected an increase in cash of $314 million dollars,
growing cash and cash equivalents to a substantial $3.4 billion or $3.92 per
share. Net cash increases grew from the combination of vendor financing,
additional paid in capital and retained profits. Receivables and inventories
trended upwards on an absolute dollar amount, but DSO reduced by three days as
days inventory crept up slightly to 82 days from 75 the prior quarter. To
fund the increase in A/R and Inventory, the company leaned on the trade,
utilized increased cash from the additional paid in capital and retained
profits in the business. Debt was paid down slightly in the current period.
Raising Estimates. Though the company's Q2F00 results were in-line, we
feel that Applied Materials' near-term outlook is very bright. The company is
realizing greater bookings, revenues and earnings than any time in its past,
the market place is pleading for increased capacity and is concurrently
transitioning to two new and exciting technologies in copper and 300-mm. DRAM
will likely experience short supply and therefore must ramp capacity, while
telecommunications applications are in almost as bad of a need for capacity.
Within the next two years some 38 new fabs will be erected and Applied
Materials, as the industry leader, will play a significant role in outfitting
this growth. This said, we believe our previous forecasts were too
conservative, and are raising estimates, accordingly. For FY00 we are raising
projected revenue to $9.41 billion and EPS to $2.40, from $8.66 billion and
$2.16, respectively. In addition, we are forecasting C01 revenue of $13.5
billion with a corresponding EPS of $3.68. We believe our estimates are still
conservative.
Valuation and recommendation.
In conjunction with this report, we are publishing an industry update titled
"Pedal already to the metal .", to communicate our view on the stocks in the
capital equipment space. The thesis articulated in that report is, of course,
highly relevant for shares of Applied. While details can be found in the
aforementioned report, the conclusion is that we expect the stocks in the
capital equipment space to stay in a lateral trading pattern for the next
several months, while expectations are adjusted. Furthermore, given the
current valuations and the robustness of the business fundamentals, we believe
we are already at the mid- to- low-end of the range. We would recommend the
strategy of "buying on weaknesses". |
