Applied Materials: Ahead of Wednesday Earnings, the Pressures Mount

The Street’s current attitude on Applied Materials (AMAT), which reports earnings after the close on Wednesday, is that investors should be prepared for the worst. The stock, which lost ground yesterday following an Oppenheimer downgrade, and other negative chatter from the Street, today has extended its losses on another round of cautionary Street commentary. I would note that a few brave souls think it may be time to bottom fish. Here’s the rundown:

• Caris & Co.’s Ben Pang today repeated his Buy rating on the stock, but cut his target to $20, from $27, and trimmed estimates. He now sees EPS for the October 2009 fiscal year at 82 cents, down from $1.41; that compares to an estimated 76 cents for FY ‘08. “We expect AMAT will meet their guidance for the quarter but results could be below our and consensus estimates,” he writes. “We also believe that orders for the quarter will be below guidance due to weakness in semiconductors.”
• American Technology Research analyst Ben Ong also repeated a Buy rating on the stock, but he cautioned that orders have weakened substantially: he says semi equipment orders could decline 25% sequentially in the January quarter. He also thinks a workforce reduction - the third this year - could be coming. He says the January guidance will be “abysmal” with near record low silicon and flat-panel display orders. He says management could “kitchen sink the guidance” in an effort to re-set the bar, and says the stock looks cheap, with a 5.6% yield, $2 billion in net cash and a 6-year low valuation.
• Cowen’s Raj Seth maintains a Neutral rating on the stock, noting that “fundamentals are terrible” for the short run, with “little reason to expect a material uptrend in orders over the next 6 months. He slashed his FY 2009 EPS estimate to 51 cents, from $1.07, with revenue to $7.4 billion, from $9 billion.
• Deutsche Bank’s Steve O’Rourke this morning asserted that the current downturn is even worse than the 2001-2002 period. He says that while some semi cap equipment companies have cut heads over the past few months, “checks indicate that some may be planning much more substantial layoffs in the coming weeks.” He says some companies are planning “prolonged shutdowns over the next couple of months,” with at least one company planning to close for most of December. O’Rourke repeated his Hold rating on AMAT, anticipating “persistent, significant weakness” in the semi cap business. He says it is too soon to own any of the companies in the sector.
• Merrill Lynch’s Brett Hodess yesterday cut his target on AMAT to $13, from $18. He also cut estimates, “to reflect the potential for the semiconductor capital equipment industry to decline 20% in 2009 and low margin solar sales to reach over 20% of sales pulling down overall margins.” He now sees pro forma EPS falling to 65 cents in fiscal 2009, from 72 cents in 2008.

AMAT today is down 17 cents, or 1.59%, to $10.54.