It’s been a rough ride for Applied Materials, Inc. (NASDAQ:AMAT) stockholders in 2015. Year-to-date, AMAT stock has shed more than 31%, with the shares plagued by resistance at their 20- and 50-day moving averages. As a result, Applied Materials is heading into this week’s third-quarter earnings report trading just shy of annual-low territory.
For the record, analysts are expecting Applied Materials earnings of 36 cents per share on revenue of $21.06 billion, versus a loss of 4 cents per share and revenue of $21.43 billion in the year-ago period. Estimates have fallen during the past several weeks, with analysts concerned about declining wafer pricing and slack demand.
What’s more, some analysts have even lower expectations. Specifically, EarningsWhisper.com reports that the third-quarter whisper number for Applied Materials comes in at 33 cents per share.
Despite these concerns, and troubling whisper numbers, many in the brokerage community remain bullish in regard to AMAT stock’s long-term outlook. For instance, according to data from Thomson/First Call, 17 of the 23 analysts following AMAT stock rate it a buy or better, compared to six holds and no sell ratings. Furthermore, the 12-month consensus price target of $24 represents a 38% premium to AMAT’s close at $17.34 on Tuesday.
Elsewhere, options traders are quite bullish on the short-term prospects for AMAT stock.
Currently, the August put/call open interest ratio for AMA arrives at 0.7. This ratio falls to 0.51, with calls roughly doubling puts, when we look at just the weekly Aug 14 series open interest (i.e., those contracts that will be most affected by Applied Materials’ quarterly report).
Click to Enlarge Overall, weekly Aug 14 series implieds are pricing in a potential post-earnings move of about 5.8%. This places the upper bound near $18.52, while the lower bound rests near $16.48.
As a result, a post-earnings rally could put AMAT stock in contention with its falling 50-day moving average — a trendline the stock has not breached on a daily closing basis since March 2. On the other hand, a decline would put the stock in 52-week low territory — potentially confirming a longer-term downtrend for the shares.
2 Trades for AMAT Stock
Put Spread: Those traders looking to bet with AMAT’s current trend might want to consider a monthly Aug $16.50/$17.50 bear put spread. At last check, this spread was offered at 25 cents, or $25 per pair of contracts. Breakeven lies at $17.25, while a maximum profit of 75 cents, or $75 per pair of contracts, is possible if AMAT stock closes at or below $16.50 when August options expire.
Call Spread: That said, expectations appear pretty low heading into this week’s quarterly report. As such, any poor performance or guidance may already be discounted in AMAT’s stock price, meaning that any positive news could be seen as an excuse to rally.
Along those lines, traders might want to consider an Aug $17.50/$18.50 bull call spread. At last check, this spread was offered at 22 cents, or $22 per pair of contracts. Breakeven lies at $17.72, while a maximum profit of 78 cents, or $78 per pair of contracts, is possible if AMAT stock closes at or above $18.50 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
