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

To: Stefan who wrote (28321)	2/16/1999 11:53:00 PM
From: A. Edwards	Read Replies (1) \| Respond to of 70976

Q299 EPS forecast by CEO will prompt analysts to up their earnings estimates on Wednesday that's for sure: Applied Materials, the world's largest maker of semiconductor equipment, surprised analysts with hefty new orders, which soared on a sequential basis to $1.03 billion in the quarter, from $684 million in the fourth quarter. "The guidance they gave the Street was that they would report $600-$675 million in new orders but of course they blew right past that," said Min Pang, an SG Cowen & Co. analyst. "It's an indicator of the future business. It was a very strong statement that things are looking pretty good right now." "If the macroeconomies stay healthy, then there is going to have to be some substantial investment in capacity and technology," said Mike O'Brien, a SoundView Financial Group analyst. O'Brien said he expects most analysts to raise their earnings estimates on Applied on Wednesday. Investors are more patient on earnings growth. First Call reports a 24-analyst consensus for a profit of 6 cents a share, which would be 1 cent less than Applied Materials delivered in the previous quarter. Most analysts now expect the final results for the first quarter to be about 8 cents, but that's down from a profit of 52 cents a share for the same period last year. Regardless, expectations of $850 million in new orders and EPS of 8 cents are already built into the stock price, says Gerry Fleming, an equipment analyst with Van Kasper & Co., who has a hold rating on the stock. "It will sell off on the numbers," he predicts. A sharp industry rebound in the second half of the year is already discounted in the stock price, and he expects to see a plateau that will last for the next few months. (Van Kasper does not have an underwriting relationship with Applied Materials.) Brett Hodess, who covers the company for NationsBanc Montgomery, says that the total value of new orders isn't as important as net orders, which would also take into account orders canceled within the quarter. Of the $684 million in new orders received last quarter, he says, $90 million were subsequently canceled. This time Hodess expects net orders to be above $700 million and EPS of 8 cents. Most of that is built into the current stock price. (Montgomery does not have an underwriting relationship with Applied.) Applied Materials shares are trading near an all-time high, with a price-to-earnings multiple of more than 100 at Friday's close of 66 7/8. Given that valuation, what could drive the stock higher? The shifting of chip production from 0.25 micron technology to 0.18 micron, says Salomon Smith Barney analyst Melind Bedekar. The shift is forcing chip companies such as Micron ( (NYSE:MU - news) ) and Intel ( (Nasdaq:INTC - news) ) to buy new equipment, even if they aren't building new manufacturing plants. And companies like Applied, with a diverse range of new products to offer, benefit most from this technology. And that, Bedekar says, is not quite built into the stock price. He has a buy rating on Applied Materials with a 12-month price target of 72, making him one of the most bullish analysts on the Street. But investors might have to wait a bit before the next rise, he adds. "The industry has always been a stop-and-go sector," he says. (Salomon Smith Barney does not have an underwriting relationship with Applied.)