On Tuesday, Argus increased its stock price target for KLA Corporation (NASDAQ:KLAC) to $800 from the previous $660, while maintaining a Buy rating on the stock.
The firm highlighted that KLA shares are currently trading at a price-to-earnings (P/E) ratio of 30.0 times their fiscal year 2024 non-GAAP earnings per share (EPS) forecast and 25.3 times their fiscal year 2025 projection. This two-year average forward P/E of 27.7 surpasses the five-year trailing multiple of 15.6.
The analysis points out that KLA's shares have historically traded at a 0.81 relative P/E, but are now trading at a two-year forward relative P/E of 1.32. Despite this, historical comparables suggest the stock may be undervalued, with a price-based historical comparable valuation indicating a value in the $420 range, which is stable and below current prices.
Argus noted that KLA trades at a modest premium to peers based on price/sales, but aligns with or falls below peers when considering absolute and relative P/E and enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). The peer indicated value stands at approximately $730, reflecting the ongoing rally in technology stocks and KLA's solid fundamentals.
Furthermore, Argus' discounted free cash flow (DFCF) analysis values KLA stock above $960, suggesting a rising trend and a valuation well above current market prices. Their blended valuation estimate, which gives greater weight to the DFCF, is around $820.
The firm concludes that the potential appreciation to their 12-month target price of $800, combined with the 0.8% annual yield, implies a risk-adjusted return that exceeds their total forecast return for the broad market, supporting their Buy rating.
InvestingPro Insights
As KLA Corporation (NASDAQ:KLAC) garners a strong buy rating with a raised price target from Argus, the company's financial health and market performance also present a compelling picture for investors.
According to InvestingPro data, KLA boasts a robust market capitalization of $93.66 billion and a Price/Earnings (P/E) ratio standing at 36.17, which is anticipated to adjust to 32.55 in the last twelve months as of Q3 2024. Despite a revenue decline of 9.68% in the same period, KLA's gross profit margin remains high at 59.57%, underscoring its efficiency in generating earnings.
From an investment perspective, KLA has demonstrated a significant return over the last week, with a 10.14% price total return, and an even more impressive 86.75% return over the past year. These metrics are a testament to the company's strong market performance and may be indicative of its potential for continued growth. KLA has shown its commitment to shareholders through consistent dividend payments, increasing its dividend for 20 consecutive years, with a recent growth of 11.54% in dividends.
For those seeking further insights and analysis, InvestingPro offers additional tips that may influence investment decisions. Notably, KLA has been recognized for revising its earnings upwards for the upcoming period according to 11 analysts, indicating a positive outlook on the company's profitability.
Moreover, KLA is a prominent player in the Semiconductors & Semiconductor Equipment industry, which is a key factor in its market valuation. For investors looking to delve deeper, InvestingPro has over 19 additional tips available, providing a comprehensive understanding of KLA's financial and market position.
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