On Tuesday, Citi made an adjustment to KLA Corporation's (NASDAQ:KLAC) price target, raising it to $725 from the previous $700, while maintaining a Neutral rating on the stock. The revision follows KLA's announcement on March 18, 2024, regarding its strategic decision to exit its flat panel display (FPD) business by the end of 2024. The company will continue to provide services to the installed base of this business segment.
KLA's decision to phase out the FPD business was anticipated, as the company had previously indicated its intentions to seek alternatives for this division. Analysts at Citi consider the move to be of little consequence to KLA’s overall revenue and growth, noting that the FPD business contributed only 1.4% to the company's revenue in the calendar year 2023.
Despite the strategic exit, KLA has reaffirmed its revenue guidance for the current quarter. However, adjustments were made to the gross margin and earnings per share (EPS) guidance to account for the non-cash expense and impairment of goodwill connected to the discontinued product lines. As a result, Citi has reduced its March-quarter and calendar year 2024 adjusted EPS estimates by $0.41.
The new price target of $725 is based on a 23.4 times price-to-earnings (P/E) multiple applied to KLA's anticipated 2025 peak earnings power of approximately $31 per share. This multiple is a slight increase from the previous 23 times multiple and is considered appropriate by Citi in light of secular industry tailwinds, including increased government spending and the introduction of multiple new product cycles. It is also noted that this multiple is above KLA's three-year average multiple of 19 times.
InvestingPro Insights
KLA Corporation (NASDAQ:KLAC) has recently caught the eye of investors and analysts alike, with Citi upgrading its price target. In light of this, it's worth considering additional insights that could impact investment decisions. According to InvestingPro data, KLA has a market capitalization of $85.69 billion and is trading with a Price/Earnings (P/E) ratio of 32.15. The company's revenue for the last twelve months as of Q2 2024 stands at $9.67 billion, having experienced a decline of 7.75%.
InvestingPro Tips indicate that KLA has a strong track record of dividend growth, having raised its dividend for 8 consecutive years and maintained dividend payments for 20 consecutive years. This consistency might appeal to income-focused investors. However, analysts have expressed concerns about the company's near-term earnings, with 11 analysts revising their earnings estimates downwards for the upcoming period. Additionally, the stock has seen significant price volatility, with a notable decrease over the last week.
As investors weigh the revised price target from Citi, they may find value in the broader context provided by InvestingPro. For those seeking more comprehensive analysis and additional tips, InvestingPro offers further insights on KLA, which can be accessed with an exclusive offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 17 additional InvestingPro Tips available for KLA, which could further guide investment strategies.
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