Applied Materials' Earnings Estimates and Zacks Rank: What Investors Should Know

Applied Materials (AMAT) stock has returned -10.7% over the past month and is rated Zacks Rank #4 (Sell) due to a -10.3% change in the consensus earnings estimate for the current quarter. The stock is expected to post earnings of $2.15 per share, a -7.3% change from the year-ago quarter. The Zacks Consensus Estimate for the current fiscal year is $9.37, indicating a year-over-year change of +8.3%.

Applied Materials (AMAT), a global leader in materials engineering solutions for the semiconductor, display, and related industries, has experienced significant market volatility and earnings revisions in recent months. The stock has returned -10.7% over the past month, while the Zacks S&P 500 composite has gained +1.6%. The Zacks Rank, a proprietary stock rating tool, has downgraded AMAT to a #4 (Sell) rating due to a -10.3% change in the consensus earnings estimate for the current quarter [2].

The company is expected to post earnings of $2.15 per share for the current quarter, a -7.3% change from the year-ago quarter. The Zacks Consensus Estimate for the current fiscal year is $9.37, indicating a year-over-year change of +8.3%. However, the stock's recent performance and the downward revision in earnings estimates have raised concerns among investors [2].

The semiconductor equipment manufacturer posted earnings that beat Wall Street estimates in the third quarter, but this has not been enough to offset broader market concerns. The company's stock closed at $161.76 on Friday, falling -14.07% despite the strong earnings report [1].

AMAT's underperformance can be attributed to several factors, including industry-wide shakeups, trade tensions, and a cautious tone from management regarding the second half of FY2025. The company's revenue mix relies on both big-ticket equipment and service income, and recent market conditions have impacted both areas [3].

Despite the challenges, AMAT remains a strong player in the semiconductor manufacturing equipment market, with a robust patent collection and long-standing relationships with major foundries and integrated device manufacturers. The company's return on equity and return on assets are well above industry averages, and it has consistently generated strong free cash flow [3].

However, the stock's valuation metrics indicate some risk. AMAT's forward price-to-earnings (P/E) ratio of 21.75× is less expensive than the market average of 25.62×, but its free cash flow yield of 3.37% is below its own five-year average of 4.10%. This suggests that the stock may be overvalued or that there is some risk of mean reversion if conditions change [3].

In conclusion, while Applied Materials has faced challenges in recent months, the company's strong fundamentals and market position suggest that it may be undervalued. However, the downward revision in earnings estimates and broader market volatility have raised concerns among investors. As such, it is essential for investors to carefully evaluate the company's prospects and consider the potential risks before making investment decisions.

References:
[1] https://www.financecharts.com/stocks/AMAT/performance/total-return
[2] https://finance.yahoo.com/news/applied-materials-inc-amat-attracting-130005197.html
[3] https://finimize.com/content/amat-asset-snapshot