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Semiconductor equipment manufacturer Materials applied (AMAT) on Monday ended its plan to acquire Japanese peer Kokusai Electric from global investment firm KKR. AMAT stock fell on Monday.
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Applied Materials, based in Santa Clara, Calif., Had announced plans to buy Kokusai for $ 2.2 billion in cash in July 2019. The purchase price then rose to $ 3.5 billion after Applied Materials has negotiated an extension of the deadline. But the parties were ultimately unable to secure approval for the transaction from Chinese regulators. Applied Materials has agreed to pay KKR a termination fee of $ 154 million in cash.
“While we are disappointed that the transaction has not closed, the future outlook for Applied Materials has never been brighter,” Applied Materials chief executive Gary Dickerson said in a press release.
He added, “Our innovations are accelerating our clients’ roadmaps and we have exceptional opportunities to extend our technology leadership, drive profitable growth and deliver compelling cash returns to shareholders.”
AMAT share sets a record
In the stock market today, AMAT stock fell 2.3% to 125.71. AMAT stock hit a record 128.98 on Friday.
Inventories of semiconductor equipment had recently jumped on the chipmakers’ increased capital spending plans. March 23, Intel (INTC) has announced plans to spend $ 20 billion on two new chip manufacturing plants in Arizona.
Last week, Applied Materials said its board of directors approved a new $ 7.5 billion share buyback authorization. This authorization complements the previous authorization, which has approximately $ 1.3 billion.
Wall Street analysts have reacted favorably to the company’s capital allocation plan.
Evercore ISI analyst CJ Muse expects Applied Materials to be more aggressive with its buyout plans now that the Kokusai deal is kaput.
“We believe Applied will reduce its number of shares by approximately 7% (in 2021) to 857 million from 925 million today,” he said in a March 19 report. Muse is evaluating the outperformance of the AMAT stock with a price target of 140.
Next potential catalyst: investor day
AMAT stock is tied for first place in IBD’s semiconductor electronics industry group, according to IBD Stock Checkup. It shares the best possible IBD composite rating of 99 with four other stocks in the group. IBD’s Composite Scoring combines five distinct proprietary scoring into one easy-to-use scoring. The best growth stocks have a composite rating of 90 or higher.
AMAT stock is on IBD’s Big Cap 20 stock list.
The next catalyst for AMAT stock could be the company’s Investor Day on April 6. At the event, Applied Materials plans to discuss its “longer term market outlook, opportunities, strategies, product and technology roadmaps, and financial goals”.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software, and semiconductor inventory.
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