Applied Materials (AMAT) Undervalued Following Fallout From Merger Collapse - Summit Research

Summit Research commented on Applied Materials (NASDAQ: AMAT) busted merger with Tokyo Electron in a research note Monday. Shares of Applied Materials fell over 7.5% after announcing the merger was terminated. Srini Sundararajan said the stock is "undervalued post the fallout of merger collapse."

"In our opinion, post the merger collapse, the position of the current senio management is likely to be politically weakened (slightly) in the immediate term….but not enough to cause any challenges. However, among the middle mgmt. AMAT’s old guard might begin to re-assert themselves. However, overall, there will be a drive towards opex reduction and this kind of “efficiency improvement” will likely result in a reduction of workforce (layoffs) in our opinion. We also think that some of the senior executives that came into AMAT by way of Varian Semiconductor (but ultimately from KLAC) might be used to turnaround the process diagnostics and control (PDC) segment to compete effectively against KLAC," said Sundararajan.

"We think AMAT’s stock is undervalued post the fallout of merger collapse. Tokyo Electron’s stock price is likely to be affected more as this deal was more of a necessity for them as the Japanese chip industry is no longer at the forefront of semiconductor manuf," continued the analyst.

Applied Materials competitors are likely to be happy given this turn of events, Sundararajan said.

"While the management will lie low for a while, eventually, this happenstance will give rise to opportunities for consolidation of smaller companies in the industry with AMAT. Companies that come to mind are: 1) Rudolph Technologies – (NYSE: RTEC) 2) Orbotech - (Nasdaq: ORBK) and perhaps even 3) the immersion lithography assets of Nikon 7731-Japan)."

For an analyst ratings summary and ratings history on Applied Materials click here. For more ratings news on Applied Materials click here.

Shares of Applied Materials closed at $21.80 yesterday.

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