UPDATE: Cowen Sees Favorable Risk/Reward in KLA-Tencor (KLAC) and Raises Rating to 'Outperform'
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(Updated - August 29, 2016 9:34 AM EDT)
Cowen upgraded KLA-Tencor (NASDAQ: KLAC) from Market Perform to Outperform with a price target of $80. Analyst Timothy Arcuri discussed its proposed deal with Lam Research (NASDAQ: LRCX), and he said the stock was "now too interesting to ignore" given favorable risk/reward.
"Amid our view that INTC pushback likely explains recent deal delays, we re-examine opportunities and conclude that LRCX is without question a better stock w/KLAC but still like our $95 target regardless. The more attractive incremental opportunity though is now KLAC, which we upgrade to Outperform w/$80 target as risk/reward (even in a deal break) is now ~3:1 to the upside - hard to find in semis," said Arcuri.
"While LRCX and KLAC remain publicly committed to the merger (albeit with less certainty), the gross deal spread has moved from ~1.5% on 8/9/16 prior to the most recent joint filing, to now ~17% (see chart) - a huge number considering the circumstances and one that reflects the high degree of uncertainty reflected in our investor discussions. This spread is ultimately implying ~20-25% probability of deal close. Considering the abrupt change that occurred in the 2wk period between FQ4:16 (Jun) earnings and the 8/10/16 filing that the company would miss the 10/20/16 deadline for merger close, something considerable clearly occurred. We surmise this is opposition from INTC but even so, it is hard to argue the deal is dramatically worse than a 50/50 proposition on a regulatory basis, though the parties well may decide it isn't worth the trouble. Regardless of deal outcome, KLAC is now too interesting to ignore," added the analyst.
Shares of KLA-Tencor closed at $67.52 yesterday.
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