AMAT photo

Applied Materials Gains After Announcing $7.5 Billion Buyback

Applied Materials, Inc. (AMAT) shares rocketed 3.89% Monday after the Santa Clara chipmaker said it planned to undertake a new $7.5 billion share repurchase program.

The buyback, which represents around 7% of the company’s $109.5 billion market capitalization, supplements the $1.3 billion outstanding portion of its previous buyback program.

In other news, the company flagged that its Kokusai Electric share purchase agreement with KKR HKE Investment L.P. may fall through due to difficulty gaining regulatory approval in China. It told investors that if it fails to get the green light from Chinese authorities by March 26, it will terminate the deal and issue KKR a $154 million termination fee.

Through Monday’s close, Applied Materials stock yields 0.84% and has gained 214% over the past 12 months. Since the start of the year, the shares have added nearly 40%. From a valuation standpoint, the stock trades at 40% its five-year average forward earnings multiple of around 14 times.

Wall Street View

After the chipmaker reported better-than-expected Q4 results in mid-February, Cowen analyst Krish Sankar lifted the investment firm’s price target on Applied Materials to $140 from $120. He also maintained his ‘Overweight’ rating. Sankar believes the company’s product momentum, its market share gains, and operating margins should continue throughout the rest of 2021.

The sentiment also remains bullish elsewhere on Wall Street. The stock receives 21 ‘Buy’ ratings and four ‘Hold’ ratings. Currently, no brokerage research recommends selling the shares. Twelve-month price targets vary between $113 at the low end to $150 at the high end. The average target of $137 represents a 15% premium to Monday’s $119.33 closing price.

Technical Outlook and Trading Tactics

The Applied Materials share price has tracked steadily higher since late October. It finds a confluence of support from a multi-month uptrend line and the 50-day simple moving average (SMA). More recently, the price has oscillated within a symmetrical triangle as bulls and bears fight for control.

Active traders should consider buying if the stock breaks above the pattern’s upper trendline on above-average volume. As added confirmation, look for the breakout to coincide with a cross of the moving average convergence divergence (MACD) indicator above its signal line. In terms of trade management, place a stop-loss order somewhere below the triangle and target a move to around $143.50 (the height of the triangle added to the pattern’s top trendline).

AMAT Chart

For a look at today’s earnings schedule, check out our earnings calendar.