Growing Tailwinds Lift KLA Corporation Stock

KLA Corporation Is Well-Positioned For The Tech Boom

There is a trend with the semiconductor sector that is impacting the entire vertical. Rising demand from end-markets like consumer products, telecom, auto OEM’s, EV, and the cloud are driving down inventories, spurring production, and leading to higher CAPEX among the chipmakers. That is good news for the group as a whole and in particular the equipment makers like KLA Corporation (NASDAQ:KLAC). We are at the dawn of a new technological age that will be made possible by ever-increasingly complex semiconductors and the equipment/processes to make them.

“This digital transformation is enabling secular demand drivers such as high-performance computing, artificial intelligence and rapid growth in new automotive electronics, and 5G communications markets. Each of these secular trends is driving investment and innovation in advanced memory and logic semiconductor devices, as well as new and increasingly more complex advanced packaging and PCB technologies,” said CEO Rick Wallace during the conference call.

KLA Corporation Beats And Raises Guidance

KLA Corporation joined a growing number of companies that are raising guidance when it reported calendar 4th quarter results. The company reported $1.65 billion in consolidated revenue to beat the consensus by 310 basis points. The net revenue is up 9.3% from last year and accelerating on a quarter to quarter basis.

"Our results for the December quarter and calendar 2020 demonstrate continued strong demand from customers, exceptional execution by our global teams, and the enduring strength and resiliency of our KLA operating model in guiding our strategic objectives," commented Rick Wallace, president and chief executive officer of KLA Corporation. "In the December quarter we also generated record free cash flow while continuing our commitment to capital returns to our shareholders."

Highlights of the report include above-expected growth in both the Semiconductor&Process Control and Services segments. The Electronics, Packaging and Components segments performed strongly as well but only in line with forecasts. Most important, the company’s backlog continues to grow and will underpin what if forecast to be double-digit growth in the year ahead.

Moving down the report, the bottom-line results were a little mixed but nonetheless strong. The company delivered record-setting cash flow and free-cash-flow of $561 and $501 million with both GAAP and adjusted earnings well ahead of last year. The negative is that GAAP earnings were only as-expected while the adjusted beat by a mere $0.03. That’s not very good in a world where the average stock is expected to beat consensus by wide margins but the bar was set pretty high. The consensus estimate for KLA Corporation is up nearly 30% from summer 2020 while the average S&P 500 company has seen its consensus rise less than 15%.

KLA Corporation Moves Higher On Q3 Guidance

KLA Corporation delivered a good enough report to keep us bullish but it is the guidance that has shares moving higher in early trading. The company guided both the Q3 revenue and earnings higher and to a range above the current consensus midpoint. In addition, the CEO commentary during the conference calls has the company on track to exceed its 2023 targets which is a major upgrade. With this new information we can expect an influx of analysts upgrades and price target increases and they are already coming in. At least four major sell-side analysts have upped their price target since the release and to a consensus of $315 or $48 above the broader consensus and $29 above recent KLAC price action.

Price action in KLAC appears to be confirming support at the 30-day EMA and the recent uptrend. The indicators are consistent with support at this level and showing early signs of a trend-following entry signal. If this signal confirms with a stronger bullish crossover in the stochastic and a crossover in the MACD an updraft to $315 is the least of what investors should expect.