Story updated at 10 a.m. to reflect market activity.
Shares of KLA-Tencor fell 1.3% to $67.91 in morning trading.
Analysts Weston Twigg and Daniel Baksht said that stock in the semiconductor company is up 7% year-to-date despite the prospect of lower expected market demand.
"KLAC flirted with our $72 price target last week before dropping back into the high $60s," the analysts wrote. "We appreciate the long-term drivers for KLA-Tencor-higher process complexity is good for the company-but we are beginning to struggle with two ideas. First, if our thesis plays out that 28 nm capacity may grow meaningfully while upcoming nodes become smaller, it is likely a more negative event for KLA-Tencor than others (mature nodes are less process control intensive, in our view). Second, if Samsung and GLOBALFOUNDRIES fail to win Apple, QUALCOMM or any other meaningful customer at the 14 nm FinFET node, those two companies may not add meaningful foundry capacity beyond 28 nm, which could drive disappointment in foundry demand next year, potentially impacting KLA-Tencor on a relative basis more than peers. We don't (as of yet) see meaningful upside to our 2015 estimates, and with the stock approaching our target of 15x our C2015 EPS estimate, we are downgrading the stock to Sector Perform. We would monitor this one carefully; if foundry demand picks up meaningfully, KLAC has all the elements to continue its run of outperformance."
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Separately, TheStreet Ratings team rates KLA-TENCOR CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate KLA-TENCOR CORP (KLAC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry average. The net income increased by 30.6% when compared to the same quarter one year prior, rising from $106.63 million to $139.25 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 5.2%. Since the same quarter one year prior, revenues slightly increased by 4.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Although KLAC's debt-to-equity ratio of 0.21 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.80, which clearly demonstrates the ability to cover short-term cash needs.
- Powered by its strong earnings growth of 31.74% and other important driving factors, this stock has surged by 38.83% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, KLAC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has increased to $115.27 million or 48.84% when compared to the same quarter last year. In addition, KLA-TENCOR CORP has also vastly surpassed the industry average cash flow growth rate of -9.59%.
- You can view the full analysis from the report here: KLAC Ratings Report