On Thursday, Stifel adjusted its outlook on KLA Corporation (NASDAQ:KLAC), reducing the price target to $800 from the previous $875 while sustaining a Buy rating on the stock. The firm acknowledged KLA’s strong performance in the first quarter of September, which surpassed both Stifel’s and consensus estimates, driven by robust growth in the Foundry-Logic sector, which saw an 11% quarter-over-quarter and a 50% year-over-year increase.
KLA’s guidance for the second quarter of December also topped expectations, despite an anticipated downturn in China. The company anticipates that China will process its recent capacity increases by calendar year 2025, reducing its sales contribution to 30% from 41% in calendar year 2024.
Despite this forecasted reduction, KLA remains optimistic about the overall growth in the wafer fabrication equipment (WFE) market for calendar year 2025. The preliminary outlook suggests that the third quarter of March could mirror the performance levels of the second quarter of December.
Stifel's commentary highlighted a mixed reception from investors, who may remain skeptical about whether KLA has adequately reflected potential negatives in its outlook. The firm suggests that the market might be underestimating the overall strength of TSMC's leading-edge spending, which could offset the impact of China's slowdown on KLA, especially given the company's advantage from increased process control intensity.
The revised price target reflects a balance between the positive results and guidance KLA has presented and the broader market concerns, particularly regarding China. Stifel concludes that despite the price target adjustment, KLA's stock maintains its Buy rating, indicating confidence in the company's performance amidst the industry's evolving dynamics.
In other recent news, KLA Corporation's first-quarter results for fiscal year 2025 exceeded expectations, leading Oppenheimer to upgrade the company's stock and raise its price target to $850. The firm's forecasts for fiscal year 2025-2026 were revised upwards by 2%. In addition, Raymond James adjusted KLA's price target to $925, maintaining an Outperform rating, reflecting the company's consistent performance in the Wafer Fabrication Equipment market.
Significant changes in KLA's management structure were announced, including the appointment of Oreste Donzella as Chief Strategy Officer and the departure of Marie Myers from the Board of Directors. These adjustments follow KLA's strategic decision to exit the flat panel display business to concentrate on process control and metrology.
Analyst firms Argus, TD Cowen, and JPMorgan have increased their price targets for KLA following strong quarterly earnings that outperformed expectations. This success is largely attributed to the development of advanced-node technologies and a rise in advanced packaging. KLA's revenue and earnings per share projections for the upcoming quarter have also surpassed expectations.
Lastly, the company and other semiconductor stocks have been positively influenced by Micron Technology (NASDAQ:MU)'s higher-than-expected first-quarter revenue forecast, indicating strong demand for memory chips used in artificial intelligence computing. This development has revitalized Wall Street's interest in AI, as observed by Fiona Cincotta, a senior market analyst at City Index.
InvestingPro Insights
KLA Corporation's recent performance and future outlook can be further contextualized with real-time data from InvestingPro. Despite Stifel's reduced price target, KLA's financial metrics remain robust. The company boasts a market capitalization of $92.68 billion, reflecting its significant presence in the semiconductor industry. KLA's revenue for the last twelve months stands at $9.81 billion, with a strong gross profit margin of 59.97%, indicating efficient operations and pricing power.
InvestingPro Tips highlight KLA's financial strength and shareholder-friendly policies. The company has maintained dividend payments for 20 consecutive years and has raised its dividend for 8 consecutive years, demonstrating a commitment to returning value to shareholders. This is particularly noteworthy given the cyclical nature of the semiconductor industry. Additionally, KLA's liquid assets exceed short-term obligations, suggesting a solid financial position to navigate market fluctuations.
While KLA is trading at high valuation multiples across various metrics, including P/E, EBITDA, and Price/Book, these valuations may be justified by the company's market position and growth prospects. The InvestingPro Fair Value of $618.54 and the analyst fair value target of $827 provide a range for investors to consider, especially in light of Stifel's new $800 price target.
For investors seeking a deeper understanding of KLA's potential, InvestingPro offers 12 additional tips, which could provide valuable insights into the company's prospects amidst the evolving semiconductor landscape.
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