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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (21070)	7/2/1998 4:26:00 PM
From: Justa Werkenstiff	Read Replies (3) \| Respond to of 70976

Lehman's Official Pitch for AMAT: APPLIED MATERIALS Price $29.50 Dividend Nil 12-Month Range $54-26 Yield Nil EPS 1997A $1.38 P/E 1997A 21.4 EPS 1998E $1.30 P/E 1998E 22.7 EPS 1999E $2.25 P/E 1999E 13.1 Company Description: Applied Materials is the world's largest manufacturer of semiconductor production equipment. Its highly advanced systems are used to process wafers, the base silicon materials on which microelectronic chips are made. Fundamental Opinion: Applied Materials is our top recommendation in the semiconductor production equipment group. Although the semiconductor production equipment industry is in a recession, there is a secular acceleration in chip manufacturing technology that should strongly benefit the company in 1999 and beyond. We maintain a one-year price target of $50 per share. Most semiconductor equipment companies will post a revenue decline for 1998, but Applied Materials should post a modest increase. The company is benefiting from a favorable product mix (with many new systems) and customer diversity (with a high market share in areas where chip capital spending is still growing). The proliferation of low-cost hardware to take full advantage of rising communications bandwidth should drive a need for a new generation of chip manufacturing technology and support. With its process knowledge, extensive product breadth, and capabilities in integrated processing, Applied Materials is uniquely positioned to provide this capability. Recent improvements in product performance and manufacturing efficiency, as well as entry into new industry subsegments, have helped position Applied Materials to increase its market share and improve its secular margin performance during the next recovery. EPS should grow 25%-plus annually over the next five years. We project cyclical peak revenues and EPS at $10 billion and $7.00, respectively. The company is implementing an early-retirement program to reduce its work force by 5% (thereby lowering its cost structure) while retaining key personnel for the upturn. The uncertain timing of a recovery in the semiconductor production equipment industry is the primary risk factor in the shares. Technical Opinion: Applied Materials' technicals are not especially strong. However, the stock has excellent support in the $26-$28 range, and the semiconductor equipment group is oversold. Thus, risk does not appear severe. A close above $40 would be quite constructive, suggest the completion of a base, and imply a run to the mid-$50s. Lehman Brothers Inc. has managed or co-managed within the past three years a public offering of the securities of Applied Materials. Lehman Brothers Inc. makes a market in the securities of Applied Materials.