Semiconductor player KLA Corporation (KLAC) specializes in wafer fab equipment (WFE) production. However, its acquisition of tech company Orbotech in 2019 opened new avenues for KLA, including advanced packaging, specialty semiconductor process equipment, and flat panel display manufacturing inspection equipment.
As Needham analyst Quinn Bolton pointed out, KLA’s market exposure to foundry/logic and memory processes recently became more balanced than earlier, when the core business was more inclined toward the former.
Last week, the company hosted its 2022 Investor Day event, which Bolton was a part of. He was fairly pleased with the long-term outlook that the company gave clarity on. “Despite the ongoing macro issues, we are believers in KLA’s commentary that it will continue to outperform WFE and gain additional share in semiconductor process control (PC). The outlook should provide some solace to investors during this uncertain time,” summarized Bolton.
Expert Sees Many Growth Opportunities
Importantly, the analyst had key takeaways to share in his research note. In the Investor Day event, KLA reinforced its WFE market demand forecast of $100 billion for Fiscal Year 2022 and its total revenue guidance of $2.3 billion-$2.55 billion for Fiscal Q4 2022, ending June 30.
Notably, KLA holds the largest market share in PC (54.4% at the end of 2021), which is four times its nearest competitor. Bolton is confident that several pillars of strength are present to hold the company’s current momentum in PC.
Also, Bolton expects revenues from Service, which contributed around 22% of total revenue in 2021, to be a “resilient and predictable” revenue stream that has the potential to be the fastest-growing segment of KLA.
“KLA’s service team is embedded with customers and are a true extension of the customers’ manufacturing teams. Because of an increasing number of complex process control steps and high levels of factory utilization, customers are constantly relying on KLA more and more to assist in ramping new facilities while also providing services to the existing equipment,” noted Bolton.
He further added that factory utilization rates at legacy nodes are high, which bolsters the need for more reliable and efficient performance that also enables the generation of higher yields. This also adds to the demand drivers for KLA’s services.
This apart, the analyst is also impressed by the company’s commitment to enhancing shareholder returns. KLA recently announced an increase in its quarterly dividend by 24% to $1.30 per share, which also marks the 13th consecutive annual dividend hike. “The company expects to continue growing its dividend at a mid-teens growth rate,” noted Bolton.
With many more upsides to the business’ growth that caught Bolton’s eyes, he reiterated a Buy rating on the stock with a price target of $395.
Wall Street, in general, is cautiously optimistic about the stock, with a Moderate Buy rating based on 10 Buys and five Holds. The average KLA Corporation price target stands at $419.60, indicating upside potential of 28.2% from current levels.
The Bottom Line
Being a semiconductor company, KLA has not been a stranger to persistent supply-chain issues. However, despite macroeconomic headwinds, there are multiple growth catalysts present that can make KLA an outperformer in the long run.
