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KLA-Tencor (KLAC) Up 8.5% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for KLA-Tencor Corporation (KLAC - Free Report) . Shares have added about 8.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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-Tencor Beats on Earnings and Revenues in Q2
KLA-Tencor Corporation reported second-quarter fiscal 2017 earnings of $1.52 a share, topping the Zacks Consensus Estimate of $1.41. Earnings were up a massive 46.2% from the year-ago quarter.
The year-over-year increase was driven by higher revenues and strengthening gross margins on the back of strong demand in wafer fab equipment market.
Underlying demand remains strong given high demand for more efficient manufacturing processes and the preference for mobile. The technical complexity of manufacturing semiconductors and increasingly challenging yield issues remain revenue drivers for this leading manufacturer of process control equipment.
At the call, management was found upbeat on KLA’s technology leadership position and the pace of execution of product strategy focused on innovation and differentiation.
Note that since each system is high-valued, customer concentration is obviated, which results in great fluctuations in revenue/orders in times of uncertain demand.
A look at the numbers
Revenues
KLA reported revenues of $876.9 million, up 16.8% sequentially and 23.5% from the year-ago quarter. Revenues were above the Zacks Consensus Estimate of $838.0 million and at the high end of management’s guidance, courtesy of strong customer acceptance for the company’s new products.
Orders
Shipments in the second quarter were $887 million, up sequentially and above the guided range.
Order contribution by segment was as follows: memory accounted for 61% of new system orders, foundry 37% and logic 2%.
Management said that foundry contribution is expected to decline to 63% of total system orders in the third quarter. Memory orders are expected to be 34% and Logic is expected to stay flat in the fiscal third quarter.
Margins
KLA’s gross margin surged 66 basis points (bps) sequentially and 317 bps year over year to 63.8%. The better-than-expected year-over-year gross margin was backed by a favorable mix of products and services and strong operating leverage in manufacturing and service operations.
Operating expenses of $220.7 million were up 0.5% sequentially and 8.1% from the year ago-quarter. Operating margin increased 476 bps sequentially and 674 bps from last year helped by cost management.
Pro forma net income was $238.2 million, or 27.2% of sales compared with $181.7 million, or 24.2% in the September quarter and $161.8 million, or 22.8% in the December quarter of last year. Including restructuring and merger-related charges, GAAP net income was $238.251 million ($1.52 a share) compared with $181.7 million ($1.173 a share) in the previous quarter and $161.8 million (98 cents a share) in the year-ago quarter.
Balance Sheet
KLA ended the quarter with cash and short-term investments balance of $2.59 billion, up 4% sequentially. Account receivables were $663.9 million, up from $654.7 million in the fiscal first quarter.
During the quarter, the company generated $222.4 million of cash from operations after spending $8.6 million on capital expenses, $84.5 billion on dividends and $40.0 million to repay its debt.
Guidance
For the third quarter of fiscal 2017, KLA expects shipments of $850–$930 million, up 0.34% sequentially at the mid-point. Quarterly revenues are expected between $860 million and $920 million, reflecting an increase of 1.5% sequentially at the mid-point. The Zacks Consensus Estimate stands at 853.4 million. Non-GAAP EPS is expected in a range of $1.42 to $1.62. The Zacks Consensus Estimate is pegged at $1.42.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter In the past month, the consensus estimate has shifted by 7.54 % due to these changes.
At this time, KLA-Tencor's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth investors than value investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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KLA-Tencor (KLAC) Up 8.5% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for KLA-Tencor Corporation (KLAC - Free Report) . Shares have added about 8.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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-Tencor Beats on Earnings and Revenues in Q2
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter In the past month, the consensus estimate has shifted by 7.54 % due to these changes.
KLA-Tencor Corporation Price and Consensus
KLA-Tencor Corporation Price and Consensus | KLA-Tencor Corporation Quote
VGM Scores
At this time, KLA-Tencor's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth investors than value investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.