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KLA-Tencor (KLAC) Down 0.1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for KLA-Tencor (KLAC - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is KLA-Tencor due for a breakout? 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 drivers.

KLA-Tencor Beats Earnings and Revenue Estimates in Q4

KLA-Tencor Corporation reported fourth-quarter fiscal 2018 earnings of $2.22 per share, beating the Zacks Consensus Estimate by 8 cents. The figure surged 36% from the year-ago quarter and 10% sequentially.

Revenues increased 14% from the year-ago quarter to $1.07 billion, comfortably surpassing the Zacks Consensus Estimate of $1.05 billion. The figure was within management’s guided range of $1.02-$1.08 billion.

Products’ revenues (almost 79% of the total revenues) increased 14% year over year to $840.5 million.

Services revenues (21% of the total revenues) increased 14.1% from the year-ago quarter to $229.5 million.

The company stated that the integration of Orbotech Ltd. is well on track. The deal will allow KLA to be a diversified technology leader in process and yield management solutions, and services.

Management expects overall process control intensity to grow this year, driven by the expanding value of inspection and measurement in addressing critical customer problems, and semiconductor industry expansion in China.

Shipments Detail

Shipments in the fiscal fourth quarter were $1.07billion, up approximately 3% sequentially and were at the high end of the company’s guided range of $1.01-$1.09 billion, driven by strength in memory.

Memory accounted for 69% (in line with guidance) of fiscal fourth-quarter shipments, 22% of foundry customers and 9% of logic.

In terms of end market, Wafer Inspection, Patterning (including shipments from reticle inspection business), Service and Non semi (including back-end component inspection business) contributed 47%, 29%, 21% and 3% of shipments, respectively.

KLA continues to experience strong growth for its Wafer Inspection solutions. Management stated that new capacity addition by Wafer manufacturers and adoption of more complex architectures by IC customers are driving demand for new bare wafer products. These are needed to support more stringent wafer flatness and process tool cleanliness specifications in advanced technologies.

The company registered strong growth in China. Management stated that China was strong in terms of both process control adoption and market share gains.

Also, orders from native Chinese customers remained solid and this momentum is expected to continue in 2018.

Operating Details

KLA’s gross margin expanded 180 basis points (bps) on a year-over-year basis to 64.8% and came in at the upper end of the guided range of 64-65%. The growth was driven by a favorable product mix.

Total operating expenses increased 11.1% year over year to $268.6 million. As a percentage of sales, both research and development, and selling, general and administrative decreased.

As a result, operating margin expanded 340 bps to 38%.

Balance Sheet

KLA ended the quarter with cash, cash equivalents and a marketable securities balance of $2.88 billion compared with $2.89 billion in the last reported quarter. Cash from operations was $373.5 million in the quarter.

Fiscal First-Quarter 2019 Guidance

For first-quarter fiscal 2019, KLA expects shipments within$935 million to $1.015 billion. Revenues are expected between $1.030 billion and $1.110 billion.

KLA expects gross margin in the range of 64-65%. Non-GAAP diluted EPS is expected in the range of $2.04-$2.36, while GAAP diluted EPS is projected within $2-$2.32.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.09% due to these changes.

VGM Scores

Currently, KLA-Tencor has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise KLA-Tencor 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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