KLA Corp. slips as Deutsche Bank downgrades, cuts estimates for 2023, 2024
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KLA Corp. (NASDAQ:KLAC) shares slipped more than 1% in premarket trading on Monday as Deutsche Bank analyst Sidney Ho downgraded the semiconductor capital equipment company, in turn cutting his 2023 and 2024 estimates.
Ho lowered his rating on KLA Corp. (KLAC) shares to hold from buy, but boosted the price target to $400 from $370, noting that the company's shares have outperformed the broader semiconductor capital equipment sector year-to-date, as it has benefited from its "over-indexing to a resilient foundry/logic market" and the fact its customers are focused on yield improvement, compared to expanding their fab capacity.
Ho also pointed out that the company's share for wafer fab equipment spending grew "partly" due to supply chain challenges that impacted its peers.
However, it's likely that the uncertainty going into 2023 and 2024 could hit foundry and logic wafer fab equipment spending, where KLA Corp. (KLAC) is "overexposed," Ho said.
"We also expect supply chain to normalize, making it less likely for KLAC to outgrow the [wafer fab equipment] market," Ho added.
Nonetheless, Ho added that it's likely that there is a recovery in wafer fab equipment spending in 2024. However, KLA Corp. (KLAC) shares are trading at 18 times estimated 2024 earnings, which is above its five-year median and modestly higher than peers Applied Materials (AMAT) and Lam Research (LRCX), making the risk-reward at current levels as "balanced."
Last month, Bank of America said the bull case for semiconductors had started to become "compelling," mentioning KLA Corp. (KLAC), among several others.
Analysts are largely bullish on KLA Corp (KLAC). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates KLAC a HOLD.