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KLA Upgraded to Overweight by Wells Fargo on Fundamentals

'KLA is well positioned to drive continued [wafer fabrication equipment] outperformance,' Wells Fargo says.
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Wells Fargo analysts Tuesday upgraded KLA  (KLAC) - Get KLA Corporation Report stock to overweight from equal weight and named the company its top semiconductor pick for 2022.

The analysts lifted their price target for the Milpitas, Calif., company's stock to $500 from $360. It recently traded at $402.30, up 4%.

“KLA is well positioned to drive continued WFE [wafer fabrication equipment] outperformance,” they wrote in a commentary.

That will be “driven by accelerating leading edge foundry/logic spending, as capital intensity remains elevated, and competition reaccelerates, with Intel  (INTC) - Get Intel Corporation Report targeting to regain process leadership,” the analysts said.

“With incremental [earnings before interest in taxes] in the 40% to 50% range, we believe [the] shares will be driven by potential forward-estimate upside.”

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Morningstar analyst Abhinav Davuluri likes KLA, too, assigning it a wide moat, though he puts fair value at $396.

“KLA dominates the process diagnostic and control segment of the semiconductor equipment industry,” he wrote Oct. 27.

“With a 55%-plus share in the [process diagnostic and control] market and installed base of 44,000 tools, KLA-Tencor has built its leading technical expertise and extensive knowledge base into a wide economic moat.

“These competitive advantages have allowed the firm to maintain its technological edge through a large research and development budget and close relationships with customers to identify future needs in the PDC space."

Meanwhile, Wells Fargo affirmed Micron Technology  (MU) - Get Micron Technology, Inc. Report as a top pick in light of its earnings strength. Wells Fargo has an overweight rating on the stock and a $115 price target. The Boise, Idaho, chipmaker's shares recently traded at $89.12, up 9%.