UPDATE: Cowen Sees Favorable Risk/Reward in KLA-Tencor (KLAC) and Raises Rating to 'Outperform'

(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.

For an analyst ratings summary and ratings history on KLA-Tencor click here. For more ratings news on KLA-Tencor click here.

Shares of KLA-Tencor closed at $67.52 yesterday.

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