KLA Corporation (NASDAQ:KLAC) recently released its quarterly earnings results, reporting a GAAP net income of $582.5 million and GAAP earnings per diluted share of $4.28 on revenue of $2.49 billion. These results exceeded expectations but still reflect lower indicators compared to previous periods. The company’s CEO, Rick Wallace, mentioned that market conditions remain challenging with limited visibility regarding the timing of a resumption in sustainable demand.
Despite the positive earnings, KLA Corporation issued lower guidance for the next quarter, citing the aforementioned challenging market conditions and limited visibility. The company expects total revenue to range from $2.175 billion to $2.425 billion, falling below analysts’ expectations of $2.46 billion. Additionally, the EPS is projected to range from $4.66 to $5.86, compared to the expected $5.86.
This cautious guidance has led to a 7% decline in the stock price, as investors express concerns about the company’s near future and the next quarter’s results. However, Wallace believes that KLA Corporation has stabilized around its current revenue levels.
Examining the revenue breakdown by reportable segments and end markets, the Specialty Semiconductor Process segment is the only one showing positive revenue growth. The PCB, Display and Component Inspection, and Semiconductor Process Control segments have experienced negative revenue growth, with a decline of 34% and 6% respectively.
Despite these challenges, KLA Corporation remains in a strong position financially. The company’s credit rating from Moody’s, S&P, and Fitch is solid, and it has been able to afford consistent dividend payments. In September 2023, KLA Corporation announced its 14th consecutive annual dividend increase, raising it by 12% to $1.45 per share.
However, KLA Corporation is not without its risks. The company heavily relies on China for 41% of its sales, which exposes it to potential issues arising from US-China relations. Given the current tensions surrounding Taiwan, this vulnerability stands out.
In terms of valuations, KLA Corporation’s GAAP P/E ratio of 28.73 may not be low compared to the S&P 500’s average, but it is fairly valued relative to its peers in the industry.
Overall, KLA Corporation is financially sound, although its revenue growth has slowed down. With a stable debt position and a stock that is not overvalued, the company continues to generate profits and increase dividends. However, the industry’s slowdown and geopolitical factors bear watching. With these considerations in mind, the stock is currently rated as a Hold, a downgrade from the previous Buy rating.
