KLA Corporation Is Fundamental To Semiconductors
KLA Corporation (NASDAQ: KLAC) is fundamental to the microchip industry and seeing a robust business because of the high demand. Not only are manufacturers ramping production but they are expanding and investing in next-generation technologies that promise to bring the full power of 5G to our fingertips. In the case of KLA Corporation, demand is high for products and services and we don’t see an end to these trends anytime soon. It’s estimated the global chip shortage will linger until the end of next year at least and demand will remain robust for long afterward.
KLA Corporation Beats And Raises, Shares Soar
KLA Corporation squeaked out a mild 20 basis point beat relative to the consensus for revenue but that is where the weakness ends. The company’s $2.08 billion in net revenue is up 35.11% over last year and last year revenue was up nearly 10%. Strength was seen in both the products and services categories with products gaining 42% over last year and services a smaller 15%.
Moving on to the earnings, the company experienced a robust 1900 basis point expansion in GAAP margin that helped deliver incredibly strong results on the bottom line. The adjusted margin contracted, however, but less than expected, and also left bottom-line results in good territory. On a GAAP basis, the company brought in $6.96 in EPS to beat the consensus by $2.64 while the adjusted $4.64 beat by a smaller $012. Regardless, the company reports record cash flow and free cash flow, as well as a willingness to funnel the income to its investors.
Turning to the guidance, the company set its revenue expectations for the 2nd quarter above the consensus estimate. The company is looking for revenue of $2.25 billion at the low end of the range compared to the Marketbeat.com consensus of $2.23 billion. In our view, investors should expect revenue to come in closer to the high end of $2.425 billion if not higher.
KLA Corporation Is Returning Cash To Shareholders
KLA Corporation has been generating strong cash flow for some time now and putting the money to good use. The company bought back roughly $400 million in shares during the quarter as well as paying out $163 million in dividends. At this pace, the $562.5 million in capital returns is only 70% of the free cash flow so we are expecting both buybacks and dividends to continue, and for both to be increased along with earnings growth. The dividend yield is a bit on the low side at 1.15% but roughly in line with the broad market average. The appeal here is the safety and the outlook for growth. Not only is FCF more than ample to sustain the dividend but the balance sheet is a fortress.
The Analysts Drive KLA Corporation Higher
The analysts are pretty bullish on KLA Corporation already but have begun to push the price target higher. At least 6 sell-side analysts have come out since the report and all include a price target increase and includes the new high price target of $490. The consensus among the 6 fresh targets is just over $410 compared to the Pricetargets.com consensus of $385. The $385 consensus assumes about 5% of upside for the stock while the high price target implies a more robust 36% advance for share prices. Price action is currently fighting with resistance at the all-time high, if that level can be surpassed we see the stock moving easily up to the $410 range if not higher.
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