Monday, September 28, 2009

Applied Materials (NASDAQ:AMAT): Upgraded to Buy at Citigroup; Added to Top Picks List

Citigroup's Semi Equipment team is upgrading Applied Materials (NASDAQ:AMAT) to Buy from Hold and adding it to Top Picks Live (Citi’s focus list) based on significant new SunFab wins, upcoming cost savings and a renewed focus on silicon share.

Firm notes they are slightly raising 2010 estimates from $0.42 to $0.46. Firm's target goes to $17 from $15 on the addition of a ~$0.20 impact from the restructuring to their former cross-cycle EPS estimate of ~$0.90. AMAT is replacing WFR on Top Picks Live.

Positive Catalysts Align — Based on checks at the Hamburg solar show, Citigroup now believes AMAT is about to sign a significant second wave of SunFab lines including four new lines (~300MW total) in India. While the ultimate success of SunFab remains debatable given how fast pricing is collapsing, the addition of new customers, more clarity on its cost cutting and up to ~$1B savings (mostly focused in sales/service/solar), some undiscovered margin leverage headed into 2010 and its new-found focus on regaining silicon share should be enough to drive the stock higher. Lastly, as the largest equipment provider to the global solar industry, it should benefit from big MW growth in 2010 and simultaneously avoid most of the pricing compression that will continue to plague cell/module makers.

Underperformance Opens The Entry Point — Sentiment remains very poor for AMAT which underperformed the SOXX by ~5% in the past 2wks and ~12% over the past month, meaning that as these catalysts play out, the Street will no longer be able to ignore the stock.

Notablecalls: Ketchup! Remember how FSLR ran on signing the China contracts couple of weeks ago? India is as good as China? Right? Right?

I think AMAT can see some upside o this call..$13.50+ range.

Note that $17 is the new Street high target for AMAT.

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