On Thursday, JPMorgan (NYSE:JPM) expressed a positive stance on KLA Corporation (NASDAQ:KLAC) shares, increasing the price target to $950 from the previous $800 while maintaining an Overweight rating.
The adjustment follows KLA's robust quarterly performance, which surpassed consensus expectations due to strong sequential trends in its core process control and services businesses.
KLA reported significant growth, attributed to the development of advanced-node technologies for foundry/logic and memory customers, as well as a surge in advanced packaging.
The analyst noted that the company's confidence has been bolstered over the last 90 days, with expectations of a 15%+ growth in wafer fabrication equipment (WFE) in calendar year 2025, where KLA's process control business is anticipated to expand even faster.
The company's outlook for the September quarter is also optimistic, with revenue and EPS projections exceeding expectations. This positive trajectory is supported by the continued ramp-up of advanced node technologies, improvements in mature/specialty markets, and robust demand for advanced packaging solutions.
KLA now projects its advanced packaging revenues to reach $500 million by the end of calendar year 2024, up from a previously estimated $400 million annualized run-rate.
JPMorgan's raised price target reflects KLA's strong market position and the expectation that the company will outperform the WFE market growth by 200-400 basis points next year, thanks to its leading market share in process control, increased complexity in manufacturing processes, and market share gains.
The firm has updated its calendar year 2024 estimates and initiated projections for calendar year 2025, forecasting significant earnings power for KLA. The stock remains JPMorgan's top pick in the semiconductor capital equipment sector.
In other recent news, KLA Corporation has reported strong earnings for June 2024, surpassing its own guidance with impressive revenue, gross margin, and EPS figures. This robust performance was propelled by solid customer demand and effective execution, leading to sequential and year-over-year revenue growth. KLA's services business also achieved a notable milestone, reaching $614 million in the June quarter, with free cash flow reported at $832 million.
Looking ahead, KLA projects a reinforced market environment and consistent progress throughout 2024 and into 2025. The company is focusing on leading-edge technologies such as AI, which is driving demand for its broadband plasma products and process control solutions. Advanced packaging revenue projections have been increased to over $500 million for 2024, signaling positive expectations for future growth.
Despite a book-to-bill ratio that has been below 1% for seven consecutive quarters, KLA remains optimistic about its prospects. The company is preparing to capture opportunities in the memory sector with a full investment cycle from customers.
However, KLA also acknowledges potential challenges, such as those in NAND bonding technology, and is carefully monitoring potential US government actions against non-US suppliers in China.
In conclusion, these recent developments underscore KLA's strong performance and forward-looking strategy in the semiconductor equipment manufacturing sector.
InvestingPro Insights
In light of JPMorgan's upbeat assessment of KLA Corporation (NASDAQ:KLAC), it's worth considering additional insights from InvestingPro. KLA has demonstrated a commitment to shareholder returns, having raised its dividend for 8 consecutive years and maintained dividend payments for 20 consecutive years. This consistency is a testament to the company's stable financial health and its status as a prominent player in the Semiconductors & Semiconductor Equipment industry.
Analyzing real-time metrics, KLA boasts a market capitalization of $101.76 billion and a Price/Earnings (P/E) ratio of 39.86, indicating that investors are willing to pay a premium for its earnings potential. Despite a revenue decline of 9.68% in the last twelve months as of Q3 2024, the company maintains a solid gross profit margin of 59.57%. Additionally, KLA has a strong Return on Assets (ROA) of 18.23%, reflecting efficient asset utilization.
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