Applied Materials Stokes Analyst Fears of Slowing Display Market

(Bloomberg) -- Applied Materials Inc. slid nearly 7 percent as trading opened after its third-quarter revenue forecast missed analyst estimates and the company cautioned that makers of displays and chips used to store data in high-end phones are slowing some projects. While a majority of analysts maintained a positive longer-term view, Goldman Sachs cut its rating to neutral and said the stock could underperform over the next six to twelve months. Suppliers and peers, including Lam Research Corp. and KLA-Tencor Corp., also slumped.

Goldman Sachs, Toshiya Hari

Downgrades to neutral from buy on "underwhelming market share outlook in the core Semi Cap Equipment business," lowers price target to $58 from $65

Cites “worse-than-feared fundamentals in Display” and “a muted gross margin outlook (relative to our prior estimates)”

While “fundamentals in the broader Wafer Fab Equipment business (WFE) remain robust,” Goldman expects “limited WFE share growth in CY18 coupled with a declining Display business in CY19 will likely weigh on stock price performance relative to group over the next 6 to 12 months”

Morgan Stanley, Joseph Moore

“Display was the market’s biggest concern this quarter given obvious oversupply of mobile OLED” and “that concern was validated as Applied guided to 15-20% declines in that segment (which makes up 14% of our FY18 revenue forecast) next year, vs. our prior forecast of growth”

“Weaker display puts more burden on semis to drive growth, but even with modest spending declines the stock remains inexpensive on next year”

Maintains overweight, lowers price target to $60 from $61

JPMorgan, Harlan Sur

“While the July quarter guide fell short, overall fundamentals remain solid with semis/services offsetting weakness in display”

Maintains overweight rating and $70 price target

Stifel, Patrick Ho

“Any pullback represents buying opportunity, long-term thesis remains intact”

For Applied Materials, “diversification and broad-based semi exposure are distinct differentiators and these aspects help drive the sustained growth management has detailed”

Reiterates buy rating, raises price target to $75 from $71

RBC, Mitch Steves

Third-quarter forecast “wasn’t enough” despite “solid” second quarter results

Applied Materials appears to be becoming more cautious on display in the near-term, although long-term views are still bullish

Company appears to be “walking toward the lower end” of estimated 2020 earnings per share of $5 to $6

Maintains outperform, $64 price target

To contact the reporters on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net;Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Brad Olesen

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