KLA-Tencor (KLAC): High Likelihood LRCX/KLAC Deal Falls Apart - Cowen
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Cowen analyst, Tim Arcuri, reiterated his Outperform rating on shares of KLA-Tencor (NASDAQ: KLAC) since he places a high probability on the scenario that LRCX and KLAC elect to walk away from the merger (likely at or near 10/20 expiration) due to pushback from INTC.
From there, the analyst sees a series of catalysts:
1) #s start to move up. Street EPS has begun to inch up (C2017 Street now ~$5.20 but we think ~$6.00 is the right number as 10/7nm foundry/logic cycle is still very early innings (see charts showing KLAC most levered to foundry/logic) and C2017 is a big year for rev rec on Gen5 that hits back at ebeam
2) multiple expansion as shareholder base is rebuilt. While LRCX has seen some slight recent multiple expansion, KLAC's multiple has compressed >20% in absolute and now trades ~20% DISCOUNT to S&P500 vs normal ~5-10% premerger PREMIUM - the lowest relative multiple in the past 10yrs other than the '09 crash
3) KLAC will start to re-engage investors in standalone model/business discussions that will highlight a bright outlook as TSMC aggressively pushes 10/7/5nm in an all-out effort to catch INTC and ward off its big foundry efforts.
No change to the price target of $80.
Shares of KLA-Tencor closed at $70.30 yesterday.
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