Applied Material’s Outlook for OLEDs Boosts Our Universal Display Price Target
This morning our shares of Disruptive Technology play Universal Display (OLED) are once again climbing higher. We attribute this to the bullish comments that compound semiconductor capital equipment company Applied Materials (AMAT) shared on the organic light emitting diode market on its earnings call last night. Given the current industry shortage for organic light emitting diode displays, AMAT has been a company to watch for potential capacity increases, and AMAT signaled that in a big way last night when it said,
- “…In the past few months, our view of display spending has strengthened further. We now see customers increasing their investments by around $3 billion in 2017, $1 billion more than we thought in November. Our early view of 2018 is also positive.”
- “50% of our demand going forward for this year is new customers for the mobile OLED” with orders improving across all of its mobile OLED customer base.
Taken together, these comments confirm the growing adoption of organic light emitting diode displays in the mobile market, principally in smartphones. Reading between the lines, we suspect part of the large increase from “new customers for the mobile OLED” is a thinly veiled reference to Apple (AAPL) and its 2017 iPhone refresh. Looking past mobile, we continue to see growing demand for this disruptive display technology from TV and wearable applications as well as those in Internet of Things applications.
On the back of this news, we are boosting our price target on OLED shares to $80 from $68, which offers upside of just over 10 percent from current levels. Our next catalyst for the shares will be when Universal Display reports its quarterly earnings on Feb. 23. Given the industry developments, we expect the company to offer a bullish outlook for 2017 and beyond. Even so, we’d need to see either upside in the shares in the range of $85-$90 or a pullback below $65 to warrant a Buy rating on OLED shares.
- We are maintaining our Hold rating on OLED shares even as we bump up our price target to $80 from $68.