On Monday, Needham analysts upgraded KLA Corporation (NASDAQ:KLAC) stock rating from Hold to Buy, setting a price target of $750. The upgrade reflects the firm's confidence in KLA's performance during challenging times, particularly its ability to outshine competitors. The company, currently valued at over $91 billion, has demonstrated strong financial health with a 22.93% return over the past year and maintains an impressive 59.75% gross profit margin.
According to InvestingPro analysis, KLA has earned a "GOOD" overall financial health rating, supported by robust profitability metrics and consistent dividend growth. According to Needham, semiconductor capital customers are likely to limit capacity expansion due to uncertainty, but not technology upgrades, especially in advanced nodes. This trend is anticipated to favor KLA more than its peers.
KLA operates the leading service business in the industry, which is expected to grow at a compound annual growth rate (CAGR) of 12-14% over the long term. Needham points out that KLA has a substantial service backlog built up from the strong wafer fabrication equipment (WFE) upcycle between 2021 and 2024.
InvestingPro data reveals the company has maintained dividend payments for 20 consecutive years and raised dividends for 9 straight years, demonstrating consistent financial strength. Want deeper insights? InvestingPro offers 12 additional expert tips and a comprehensive Pro Research Report for KLA. This backlog is predicted to support continued low double-digit service revenue growth, contributing to the company's overall growth in a flat WFE environment.
Needham's previous caution regarding KLA was based on the company's significant exposure to the Chinese market and an overly optimistic view of China's prospects in 2025. However, KLA has recently revised its China outlook for 2025, accounting for a $500 million impact from export controls implemented in December 2024.
The firm now presents a fully de-risked China outlook, which is unique in the industry. Moreover, KLA has promptly ceased some shipments to China following the new export control rules, which is expected to reduce its China exposure to 25% in the fourth quarter of 2024.
The analysts at Needham believe that while the semiconductor capital industry has not fully adjusted its China outlook, KLA has successfully navigated the changes, leaving it with a clean slate. Consequently, the analyst's previous concerns about KLA's prospects no longer apply, leading to the current Buy recommendation.
With a current ratio of 2.13 and moderate debt levels, KLA maintains strong financial flexibility. While analyst targets range from $620 to $950, InvestingPro's Fair Value analysis suggests the stock is slightly overvalued at current levels.
In other recent news, KLA Corporation reported robust financial performance for the September 2024 quarter, with revenues reaching $2.84 billion and non-GAAP diluted EPS at $7.33, surpassing expectations. In parallel, the company announced a strategic transition plan for its Executive Vice President and Chief Strategy Officer, Oreste Donzella, who will assume a part-time senior advisory role from April 14, 2025.
KLA Corporation also maintained its financial guidance for the December quarter of 2024, despite new regulatory challenges from the U.S. Department of Commerce.
In the analyst arena, JPMorgan (NYSE:JPM) and Citi issued positive ratings for KLA Corporation. JPMorgan projects a global WFE growth of over 5% and expects KLA Corporation to outperform this figure due to their expansion opportunities in next-generation leading-edge technologies. Concurrently, Citi analysts have issued a 'buy' rating for KLA Corporation, predicting a 9% year-over-year increase in global semiconductor sales in 2025.
In contrast, Western Digital Corp (NASDAQ:WDC) shares fell by 4% due to a gloomy earnings forecast by industry peer Micron Technology (NASDAQ:MU), which raised concerns about weakening demand in the semiconductor sector. Deutsche Bank (ETR:DBKGn) adjusted its price target on Lam Research (NASDAQ:LRCX) shares, increasing it slightly to $76 from the previous $75, while keeping a Hold rating on the stock. These are just a few of the recent developments in the semiconductor industry.
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