Needham & Company Upgrades KLA-Tencor (KLAC) to Buy; Sees Positive Risk/Reward Following Merger Termination
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Needham & Company upgraded KLA-Tencor (NASDAQ: KLAC) from Hold to Buy with a price target of $84, citing positive risk/reward after the Lam Research merger was terminated.
Analyst Y. Edwin Mok commented, "We are upgrading KLAC to Buy from Hold with a PT of $84, after LRCX and KLAC terminated their proposed merger. KLAC is outperforming WFE in CY16 partially due to lower DRAM mix this year, but the stock's multiple saw compression (16x to 13x) due to the deal. We believe expectations for CY17 are low as DRAM mix is likely to recover, but we see strong growth continuing on strengthened foundry demand, ramping of Gen 5 optical inspection tools, growth from other new products, and a leaner operating structure enabling better margins/profitability ahead. While the stock could see near-term pressure on investor churn, we believe it is undervalued at a CY17 P/E of 13x. KLAC historically trades at a premium to peers on structurally higher margins and ROIC, and we expect multiple expansion ahead as it delivers our growth projections."
Shares of KLA-Tencor closed at $71.79 yesterday.
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