"KLA-Tencor Shares Reflect a Droopy Outlook"
By K.C. Swanson Staff Reporter 01/24/2003 02:23 PM EST
URL: thestreet.com
KLA Tencor (KLAC:Nasdaq - news - commentary) shares edged down a day after the company reported earnings, assisted by a
downgrade from Prudential.
The stock slipped $1.81, or 5%, to $34.60 in recent trading.
While investors keep gearing for an upturn in semiconductor capital equipment, the first quarter won't offer much light for KLA-Tencor. Though the quarter ending in December was the company's worst for revenue so far in the downturn, March sales promise to be worse.
Revenue will probably slide another 10%, the company said yesterday. Guidance for revenue of $300 million was slightly below estimates of $306 million. On the plus side, earnings-per-share guidance of 12 cents was a penny ahead of expectations.
This morning, Prudential's Shekhar Pramanick said in a note that he has knocked down his rating from buy to hold, citing the stock's steep valuation amid a still-weak demand outlook. "Given our concerns regarding the steep declines in DDR DRAM pricing, flat March quarter order guidance and geopolitical uncertainty, we believe the near-term catalysts for stock appreciation could be limited," said Pramanick.
Plus, he said, KLAC looks richly valued compared with its peers, trading at 3.5 times book value and 44 times his 2004 calendar year EPS estimate of 84 cents. Prudential doesn't do banking.
At Morgan Stanley, Steve Pelayo stuck by his equal-weight rating on the stock. He gives the company credit for staying in the black in a tough period, but he likewise sounds wary on its near-term prospects. "While sentiment wants to 'buy the last piece of bad news,' we are waiting for better visibility on recovery ramp post Chinese New Year," he said in a note. Morgan Stanley hasn't done recent banking for KLAC.
For the past two months, the book-to-bill ratio, a closely watched indicator of chip-equipment industry health, has been on an upswing.
Though fundamentals are "clearly bottoming," says Pelayo, "The rate of recovery appears muted, at least initially, with '03 industry capex looking up roughly 5% to 10%."
One point for optimists to fix on: Consensus estimates currently anticipate some growth for KLAC in the second quarter of the year.
But for now, there's a sense the stock may be stuck treading water, if not losing ground. "Over the near term, we believe KLAC shares will trade in a range of the low to mid-$30s," predicted Gregory Konezny of U.S. Bancorp Piper Jaffray. An affiliate of U.S. Bancorp's parent company has recently provided commercial banking services to KLA-Tencor.
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