Headquartered in Milpitas, California, KLA Corporation (KLAC) manufactures and sells process control and yield management solutions for the semiconductor and related nano-electronics industries worldwide. The company provides compound semiconductor, power device, and micro-electromechanical system manufacturing products.
The growing demand for faster and more advanced memory chips in industrial applications, as well the increasing implementation of IoT, AI, 5G and wireless communications owing to an ongoing shift to virtual ways of working and learning, should boost the semiconductor industry’s growth. As one of the prominent chip manufacturers, KLAC is expected to continue growing with higher investments in cutting-edge technologies and consistent spending on R&D by global economies.
The company’s resilient business model and strategic investments have helped it to gain 21.3% year-to-date. This impressive performance combined with several other factors has helped KLAC earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates KLAC:
Trade Grade: A
KLAC is currently trading above its 50-day and 200-day moving averages of $256.77 and $205.16, respectively, indicating that the stock is in an uptrend. In fact, the stock has gained 42.7% over the past three months, reflecting solid short-term bullishness.
KLAC’s revenue has increased 8.9% year-over-year to $1.54 billion for the fiscal first quarter ended September 30, 2020. The company’s net income has increased 21.4% from the year-ago value to $420.57 million, while its EPS grew 24.3% year-over-year to $2.71. Its cash from operating activities has risen 3.2% from the prior-year quarter to $512.17 million over this period.
Last December, KLAC introduced two new products – the PWG5 wafer geometry system and the Surfscan SP7 wafer defect inspection system — to address difficult issues in the manufacture of leading-edge memory and logic integrated circuits. This development should allow the company to collaborate with leading customers around the globe and grow substantially in the coming months.
On December 1, KLAC announced two innovative roll-to-roll manufacturing solutions to increase yield, ease operation and overcome quality challenges. This should enable KLAC to provide advanced solutions that foster e innovation throughout the electronics industry and stand out in the market.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , KLAC is well positioned. The stock is currently trading just 0.9% below its 52-week high of $316.8, which it hit on January 19.
The company’s net revenue has grown at a CAGR of 17.1% over the past three years, while its EBITDA increased at a CAGR of 15% over this period. Also, KLAC’s total assets increased at a CAGR of 17.9% over the past three years. This growth is largely driven by the higher customer engagement and strategic collaborations made by the KLAC to launch new products.
Peer Grade: A
KLAC is currently ranked #13 of 99 stocks in the Semiconductor & Wireless Chip industry. Other popular stocks in this industry are Broadcom Inc. (AVGO), Texas Instruments Incorporated (TXN) and Micron Technology, Inc. (MU)
TXN, MU, and AVGO gained 32.3%, 48.3%, and 48.7%, respectively, over the past year. This compares to KLAC’s 75.7% returns over this period.
Industry Rank: A
The Semiconductor & Wireless Chip industry is ranked #2 of 123 StockNews.com industries. The companies in this industry manufacture semiconductors and other components used in electronic devices, such as wafer processing equipment, semiconductor assembly and packaging equipment, and other machinery used to produce semiconductors.
A rising need for cloud services and higher internet traffic should spur the demand for devices sold in this industry. Moreover, the industry underpins today’s key segments, including medical and healthcare and several complementing technologies such as artificial intelligence, internet of things (IoT) and 5G. These factors, we think, should contribute significantly to the industry’s overall growth.
Overall POWR Rating: A (Strong Buy)
KLAC is rated “Strong Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength as determined by the four components of our overall POWR Rating.
KLAC is favorably positioned to continue its rally despite gaining 21.3% year-to-date, based on the factors discussed here. As one of the dominant players in the semiconductor industry, KLAC’s market share is expected to rise substantially, owing to its highly innovative products. Thus, it may be wise to invest on the stock now.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for KLAC. It has an average broker rating of 1.67, indicating favorable analyst sentiment. Of 17 Wall Street analysts that rated the stock, four rated it a “Strong Buy.” The consensus EPS estimate of $3.11 for the quarter ending March 31, 2021 represents a 25.9% improvement year-over-year. The consensus revenue estimate of $1.60 billion for the current quarter represents a 12.6% increase from the same period last year. This outlook should help KLAC continue rallying in the coming months.
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KLAC shares were trading at $304.65 per share on Wednesday afternoon, down $9.43 (-3.00%). Year-to-date, KLAC has gained 17.67%, versus a 2.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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