Here is the upgrade summary from CSFB.
<<Upgrading to Outperform
• Upgrading to Outperform. In a separate piece we also have out today, we are upgrading semiconductor equipment sector weight from Marketweight to Overweight. Our basic call is that although we are not early in the memory capex cycle, we think that memory spending will remain stronger longer than most investors expect. In conjunction with this call, we are upgrading AMAT from a Neutral to an Outperform.
• Leveraged to the DRAM cycle. We think that memory capex will grow 10% y/y into 2007, driven mostly by DRAM capex, which we think will be driven by Taiwanese DRAM companies for the most part. Given AMAT’s broad product portfolio, AMAT has good leverage to all chip companies, including Taiwan DRAM. After spending a week in Taiwan, our checks suggest a pick up in order activity from memory companies which is improving AMAT’s visibility. In particular, we are a lot less concerned on AMAT’s NT business momentum into F1Q and F2Q07.
• Not counting on any alpha. Our call on AMAT is largely a cycle call, and any meaningful improvement in AMAT’s portfolio approach to its growth efforts – service, FPD and solar – will represent further upside to estimates. We think it is too early to call whether AMAT will succeed in all its growth efforts; but we’ve argued this is the first time in five years that the growth strategies may have some potential for success. The alpha angle to AMAT’s story is worthwhile for investors to monitor, given the upside we already expect from cycle beta for AMAT.
• Estimates and Valuations. We are leaving our F4Q estimates unchanged at $2.54bb and 30c; but are increasing our F1Q07 estimates up from $2.35bb and 29c to $2.48bb and 30c. For AMAT, looking just at quarterly order rates provides little framework for a sustainable investment thesis (as evidenced by the tight trading range on the stock in the last several years). That said, for what it’s worth, we now expect AMAT’s peak to trough order declines to improve, from down 27% to down 17%. We are raising our full year CY07 rev/EPS from $8.90bb and $1.03 to $9.85bb and $1.20, consensus is at $9.72bb and $1.10, and also increasing our price target from $18 to $20, representing an inline with peer-group EV/EBITDA multiple of 9.5x.>> |
