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Why Applied Materials Stock Popped 13.4% in November

By Steve Symington – Dec 10, 2018 at 6:11PM

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A slightly better-than-expected quarter helped the semiconductor equipment leader rebound last month. Here's what investors need to know.

What happened

Shares of Applied Materials (AMAT -3.18%) climbed 13.4% in November, according to data from S&P Global Market Intelligence, after the semiconductor equipment specialist announced fiscal fourth-quarter 2018 results. 

That's not to say Applied Materials' actual results looked overwhelmingly positive. Quarterly revenue increased a modest 1.1% year over year to $4.01 billion, translating to a 4.9% decline in adjusted (non-GAAP) net income to $956 million. Thanks to ambitious stock repurchases of $5.89 billion during the fiscal year, however, adjusted net income climbed 4.3% year over year on a per-share basis, to $0.97. By comparison, these results were slightly above the midpoints of Applied Materials' guidance provided in August, which called for revenue of $3.85 billion to $4.15 billion, and earnings per share of $0.92 to $1.00.

Stock market charts on a colorful display indicating gains


So what

"In fiscal 2018, each of Applied's major businesses delivered double-digit growth despite challenging conditions in the second half of the year," stated CEO Gary Dickerson. "While near-term market headwinds remain, overall industry spending remains robust, and we are focused on positioning Applied Materials for the long term, expanding our role in the A.I.-Big Data era and winning the major technology inflections ahead."

Regarding those "near-term market headwinds," Applied Materials told investors to expect net sales for the current first quarter of fiscal 2019 to range from $3.56 billion to $3.86 billion, down 12% year over year. That should translate to adjusted net income per share of $0.75 to $0.83, down 25% from the same year-ago period. 

Now what

Why, then, did Applied Materials' shares steadily climb for the duration of last month? For one, they were already down nearly 40% year to date leading up to its earnings release, so it seems the stock was already pricing in the company's near-term weakness. Coupled with a quarterly performance that -- however slight -- managed to edge out expectations, as well as Applied Materials' astute moves to position itself for sustained, long-term growth, the market had little choice but reward it with modest gains in November. And make no mistake: If Applied Materials can build on this momentum and demonstrate the worst is over in the coming quarters, I suspect its stock will only continue to respond in kind. 

Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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