On Tuesday, Wells Fargo (NYSE:WFC) maintained its Overweight rating on KLA Corporation (NASDAQ:KLAC) and increased the shares price target to $760 from the previous $750.
The adjustment follows KLA's announcement regarding the discontinuation of its flat panel display (FPD) business, which was revealed after markets closed on Sunday. This segment represented approximately 1.4% of the company's total revenue in the calendar year 2023.
KLA's decision to exit the FPD business is expected to have a negative impact on gross margins and earnings per share in the first quarter of 2024. Despite this, Wells Fargo sees the company's long-term narrative as unaffected, with the firm's positive long-term thesis on KLA remaining intact.
The strategic move to shut down the FPD business comes after KLA indicated during its fourth-quarter earnings call in the calendar year 2023 that it was considering strategic alternatives for this segment. The company has cited several reasons for this exit, including the cancellation of a significant new technology project by a major customer.
KLA's FPD business is part of its broader PCB, Display & Component Inspection division. The company is a leading provider of process control and yield management solutions for the semiconductor and related nanoelectronics industries.
The revised price target by Wells Fargo reflects confidence in KLA's overall business strategy and future performance, notwithstanding the short-term impacts of exiting the FPD business. The firm's Overweight rating suggests that they expect the stock to outperform the average total return of the stocks in the analyst's coverage universe over the next 6 to 12 months.
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