On Thursday, Oppenheimer revised its position on KLA Corporation (NASDAQ:KLAC), upgrading the stock from Perform to Outperform and raising the price target to $850 from the previous $750. This move comes after KLA’s first-quarter results for fiscal year 2025 exceeded expectations, leading the firm to increase its fiscal year 2025-2026 (June) estimates by 2%.
The Oppenheimer analyst cited several factors for the upgrade, including a positive outlook for the next six to nine months as government intervention activities are expected to decrease, allowing investors to focus on the growing AI theme. The analyst also pointed out KLA’s improved valuation, which is now below the market average, and the company’s strong position in the metrology and inspection market, comparing it to the “Microsoft (NASDAQ:)” of its sector.
Despite a 20% drop from its all-time high, Oppenheimer sees this as a good opportunity for investors to consider KLA’s stock. The firm also highlighted the contrasting sentiment shift at ASML (AS:) as a backdrop that emphasizes KLA’s investment attractiveness.
Oppenheimer praised KLA’s resilient business model, which includes participation in an oligopolistic market and a management team focused on shareholder interests. These factors are seen as supportive of the company’s potential for double-digit growth, a 40% GAAP operating margin, and a 30% free cash flow conversion rate.
The $850 price target is based on a 25 times multiple of KLA’s estimated fiscal year 2026 earnings per share, which is 20% higher than the S&P 500’s multiple. According to the Oppenheimer analyst, this target aligns with KLA’s median performance in the ChatGPT/AI era.
In recent developments, financial services firm Raymond James adjusted KLA Corporation’s price target to $925, down from $975, while maintaining an Outperform rating. The adjustment reflects KLA’s consistent outperformance in the Wafer Fabrication Equipment market and the expected continuation of this trend due to increasing demand for process control intensity.
Regarding management changes, Marie Myers will be leaving KLA’s Board of Directors. The company has also undergone a significant reorganization of its management structure, including the appointment of Oreste Donzella as the new Chief Strategy Officer. These changes follow KLA’s strategic decision to exit the flat panel display business and focus on its core offerings in process control and metrology.
Analyst firms Argus, TD Cowen, and JPMorgan have raised their price targets for KLA Corporation following strong quarterly earnings that surpassed expectations. This success was attributed to the development of advanced-node technologies and an increase in advanced packaging. The company’s revenue and earnings per share projections for the upcoming quarter have exceeded expectations, indicating a positive outlook.
Lastly, KLA Corporation and other semiconductor stocks have benefited from Micron Technology (NASDAQ:)’s higher-than-expected first-quarter revenue forecast, indicating strong demand for memory chips used in artificial intelligence computing. This has reignited Wall Street’s interest in AI, as noted by Fiona Cincotta, a senior market analyst at City Index.
KLA Corporation’s strong market position, as highlighted by Oppenheimer’s upgrade, is supported by InvestingPro data and tips. The company’s P/E ratio of 30.66 (adjusted for the last twelve months) reflects the market’s high expectations, in line with Oppenheimer’s positive outlook. This valuation is backed by KLA’s solid financials, including a strong gross profit margin of 59.97% and an operating income margin of 37.03% for the last twelve months.
InvestingPro Tips reveal that KLA has increased its dividend for 8 consecutive years and maintained payments for 20 years, demonstrating a commitment to shareholder returns. This aligns with Oppenheimer’s praise for KLA’s management focus on shareholder interests. The company’s strong financial health is further supported by its liquid assets exceeding short-term obligations and operating with a moderate level of debt.
For investors seeking more in-depth analysis, InvestingPro provides 12 additional tips on KLA Corporation, offering deeper insights into the company’s financial health and market position.
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