On Thursday, BofA Securities maintained a positive outlook on KLA Corporation (NASDAQ:KLAC), reiterating a Buy rating and a price target of $860.00. The firm's analyst highlighted KLAC as a top semiconductor capital equipment pick, with expectations of solid year-over-year growth of 12% next year.
This forecast is based on the company's strong performance and favorable comments regarding the capital expenditure for the calendar year 2025, indicating that core growth drivers remain on track.
KLAC's performance is partly attributed to its leading position in the foundry and logic spend sectors, as well as its role as a beneficiary of rising process control demand. The company recently reported a robust financial beat and raised its outlook, reinforcing confidence in its growth trajectory.
Despite potential industry challenges, KLAC's management is focusing on expanding its market share within the $98 billion estimated 2024 wafer fabrication equipment (WFE) market, particularly in leading-edge technology areas such as 2nm gate-all-around transistors, increased 3nm capacity, and advanced packaging for logic and high bandwidth memory.
A significant consideration for KLAC is the adjustment of its business in China, where revenue exposure is expected to decrease from approximately 42% in the September quarter to a mid-30% range in the December quarter, and eventually to around 30% by the end of calendar year 2025.
This anticipated decline represents a 15% year-over-year drop in revenue from China, which would be approximately $3.6 billion in 2025 down from an estimated $4.2 billion in 2024. However, the analysis suggests that a portion of this revenue, roughly 25-30%, is likely to be insulated from export controls due to its association with infrastructure.
In light of these factors, BofA Securities has increased its sales and earnings per share estimates for KLAC for the calendar years 2025 and 2026 by 4-5%. The analyst projects potential upside towards a target of $14 billion in sales by 2026, with current estimates at $13.2 billion. The price target of $860 is based on a 27 times price-to-earnings ratio for the calendar year 2025, down from 29 times, which is a premium compared to peers but is justified by KLAC's superior gross margin and free cash flow profile.
In other recent news, KLA Corporation has been the subject of several adjustments in price targets by various analyst firms. Stifel has reduced the company's price target to $800 from $875, while maintaining a Buy rating. This adjustment follows KLA's impressive first quarter performance in the Foundry-Logic sector, which saw significant growth. Despite an anticipated downturn in China, KLA's guidance for the second quarter of December exceeded expectations.
Oppenheimer has upgraded KLA's stock to Outperform from Perform and increased the price target to $850 from $750. This upgrade was influenced by KLA's strong first-quarter results and the company's dominant position in the metrology and inspection market. Raymond James, on the other hand, adjusted KLA's price target to $925 from $975, while maintaining an Outperform rating, reflecting the company's consistent performance in the Wafer Fabrication Equipment market.
KLA Corporation has also undergone significant management changes, with Marie Myers departing from the company's Board of Directors and Oreste Donzella being appointed as the new Chief Strategy Officer. These alterations follow KLA's strategic decision to exit the flat panel display business to focus on its core offerings in process control and metrology.
Finally, KLA Corporation 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 revived Wall Street's interest in AI, as noted by Fiona Cincotta, a senior market analyst at City Index.
InvestingPro Insights
KLA Corporation's strong market position and growth prospects, as highlighted by BofA Securities, are further supported by real-time data from InvestingPro. The company's market cap stands at an impressive $92.68 billion, reflecting its significant presence in the semiconductor industry. KLA's revenue for the last twelve months as of Q4 2024 was $9.81 billion, with a solid gross profit margin of 59.97%, underscoring its operational efficiency.
InvestingPro Tips reveal that KLA has maintained dividend payments for 20 consecutive years and has raised its dividend for 8 consecutive years, demonstrating a commitment to shareholder returns. This aligns with the company's strong financial performance and market position discussed in the article. Additionally, KLA is noted as a prominent player in the Semiconductors & Semiconductor Equipment industry, which supports BofA's view of the company as a top pick in the sector.
For investors seeking a deeper understanding of KLA's potential, InvestingPro offers 12 additional tips, providing a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable in light of the expected changes in KLA's China revenue exposure and its focus on expanding market share in advanced technologies.
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