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KLA (KLAC) Up 1.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for KLA (KLAC - Free Report) . Shares have added about 1.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is KLA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

KLA Corp. Beats Q4 Earnings and Revenue Estimates

KLA Corporation reported fourth-quarter fiscal 2020 earnings per share of $2.73, which beat the Zacks Consensus Estimate of $2.35. The figure was up 53.4% year over year and 10.5% sequentially.

Revenues increased 16% from the year-ago quarter and 2.5% sequentially to $1.46 billion, surpassing the Zacks Consensus Estimate by 4.04%. The figure was above the midpoint of the company’s guided range of $1.26-$1.54 billion.

The newly formed Electronics, Packaging and Components or EPC group delivered record results for the quarter.

Foundry and logic is expected to continue performing well in 2020. The optimistic outlook is driven by next-generation technology development, capacity additions at leading-edge nodes, increasing competitive dynamics and investment in EUV infrastructure.

In addition, management expects business from Memory customers to improve in the second half of 2020.

Demand for advanced logic nodes is expected to remain healthy through 2020 and in 2021 driven by investment in EUV, competitive dynamics, as well as capacity additions.

Management continues to expect overall process control intensity to grow in 2020, driven by expanding value of inspection and measurement in addressing critical customer problems.

Top-Line Details

Products revenues (accounting for almost 74% of total revenues) increased 17.2% year over year to $1.08 billion.

Services revenues (26% of total revenues) also increased 12.8% from the year-ago quarter to $384.5 million.

The services business set a record for system installations in the quarter. Service contract penetration was robust, which has steadily risen from the 70% plus contract penetration to 75% plus over the last several quarters, in turn delivering a strong recurring revenue stream.

In terms of reportable segments, Semiconductor Process Control revenues increased 15% year over year to $1.16 billion, driven by continued strength in foundry and logic. Foundry was approximately 50% of semiconductor process control systems’ revenues, logic was about 10% and memory customers were 40%.

Specialty Semiconductor Process revenues were $100 million, up 50% year over year and 18% sequentially, driven by strength in RF, MEMS and advance packaging.

The segment is expected to further benefit from expanding RF demand to support 5G infrastructure investment, particularly in China.

PCB, Display and component inspection revenues increased 10% from a year ago and 26% sequentially to $202 million. Other revenues were $0.397 million.

Operating Details

Non-GAAP gross margin was 60.3% versus 61.2% in the prior quarter. The gross margin was slightly above the midpoint of the guided range of 59-61%.

Total operating expenses decreased 3% year over year to $384.9 million. As a percentage of sales, research and development as well as selling, general and administrative costs slightly decreased from the prior-year quarter.

Balance Sheet

KLA Corp. ended the quarter with cash, cash equivalents and a marketable securities balance of $1.98 billion compared with $1.63 billion in the fiscal third quarter.

Cash from operations was $452.8 million in the fiscal fourth quarter versus $442 million in the prior quarter.

Fiscal First-Quarter 2021 Guidance

For first-quarter fiscal 2021, revenues are expected between $1.405 million and $1.555 million.

The company expects gross margin in the range of 60.5-62.5% and non-GAAP EPS within $2.42-$3.06.

GAAP EPS is projected within $2.18-$2.82.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 21.75% due to these changes.

VGM Scores

At this time, KLA has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise KLA has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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