KLA Corporation (NASDAQ: KLAC), a company that sells manufacturing tools and yield management systems for the semiconductor industry, has seen its stock rise by roughly 4.3% over the last week (five trading days), compared to the S&P 500 which was down by 1.6% over the same period. The stock also outperformed over the last month (21 trading days), rising by about 9%. The recent gains come as the global semiconductor shortage continues, with semiconductor majors making big commitments to their capacity expansion in the coming years, a trend that bodes well for semiconductor manufacturing equipment players like KLA. For instance, Intel intends to double down on contract manufacturing, recently announcing plans to build new chip-making facilities in Europe by investing as much as $95 billion over the next decade or so. Samsung also previously announced that it would spend as much as 171 trillion won (about $151 billion) through 2030 on expanding its logic chip capacity.
But now that KLAC stock has seen a 9% move over the last month or so, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a strong chance of a rise in KLAC stock over the next month. Out of 469 instances in the last 10 years that KLA Tencor (KLAC) stock saw a 21-day rise of 8.7% or more, 292 of them resulted in KLAC stock rising over the subsequent one-month period (21 trading days). This historical pattern reflects 292 out of 469, or about 62% chance of rising in KLA Tencor stock over the next month. See our analysis on KLA Corporation Stock Chances of Rise for more details.
The longer-term picture for the stock also looks promising. KLAC stock trades at just 18.5x projected FY’22 earnings, despite the fact that it is projected to post close to 25% revenue growth this year, per consensus estimates. Moreover, growth should also hold up in the future, as KLA’s tools essentially help semiconductor manufacturers yield defect-free chips, a process which could become more crucial to chip companies as they move to more advanced fabrication processes, packing in more transistors per chip to boost processing power and cut energy consumption.
[7/7/2021] Why KLA Corporation Stock Looks Like A Buy At $310
KLA Corporation (NASDAQ: KLAC), a company that sells manufacturing tools and yield management systems for the semiconductor industry, has seen its stock price rise by about 3.5x since the end of 2018 trading at levels of close to $311 per share, outperforming the broader Nasdaq-100 which was also up by a healthy 2.3x over the same period. The gains come on the back of robust demand growth for the company’s wafer inspection products and services operations as well as the current chip supply crunch, which should translate into stronger demand for the company’s products and services. While the stock is also up by about 19% year-to-date, it has underperformed most of its peers in the semiconductor manufacturing equipment space. For example, Applied Materials (AMAT) is up by about 60% this year, while ASML is up 43% and LAM Research (LRCX) is up about 32%. So is the stock a buy at current levels? We think it is for a couple of reasons. Our dashboard What Factors Drove 3.5x Change In KLA Corporation Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.
What Has Driven KLA Corporation’s Stock?
So what has driven KLA’s stock price appreciation over the last three years? Revenues rose from $4 billion in FY’18 (fiscal years end June 30) to about $5.8 billion in FY’20, an increase of about 45%. The growth was driven primarily by strong demand growth for the company’s Semiconductor Process Control segment, which provides a portfolio of inspection, measurement, and data analytics products, and related services that enable logic chip manufacturers to achieve their targeted yield rates through the semiconductor fabrication process. Net margins grew from about 20% in 2018 to about 21% in FY’20, driven by improving scale and increasingly differentiated products. Net income grew from around $0.8 billion in FY’18 to about $1.2 billion in FY’20. EPS grew at a slightly quicker pace, from around $5.13 per share in FY’18 to $7.76 in FY’20, as the company’s shares outstanding declined, on account of stock repurchases. The strong growth rates and improving margins have meant that investors are valuing KLA stock more richly, with its P/E multiple, based on GAAP earnings, expanding from 17x in FY’18 to almost 40x currently, based on FY’20 earnings.
What’s the longer-term outlook for the stock?
The longer-term demand outlook looks promising for the company for a couple of reasons. Firstly, the ongoing semiconductor shortage, increasing digitization, and the increasing push by countries, particularly the U.S., to bolster domestic production, are likely to drive a multi-year capex cycle in the semiconductor industry. For example, Taiwan’s TSMC said it will spend about $100 billion over the next three years to boost capacity, while Samsung Electronics plans to invest $116 billion into boosting production by 2030. Even microprocessor behemoth Intel (INTC) is looking to double down on the foundry space, producing chips for other companies. These trends are likely to directly help KLA. Moreover, KLA’s tools, which essentially help semiconductor manufacturers yield defect-free chips, are likely to become more crucial to chip companies as they move to more challenging fabrication processes, packing in more transistors per chip to boost processing power and cut energy consumption. KLA’s revenues are projected to grow by 18% per consensus estimates in FY’21, while rising by another 14% in FY’22. The stock also isn’t too expensive relative to this growth, trading at just about 18x FY’22 adjusted earnings.
See our theme on Stocks That Benefit From The Semiconductor Shortage for a complete list of companies that stand to benefit from the current supply crunch in the semiconductor space.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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