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KLA-Tencor (KLAC) Hits Fresh High: Is There Still Room to Run?

Zacks Equity Research

Have you been paying attention to shares of KLA-Tencor (KLAC)? Shares have been on the move with the stock up 8.2% over the past month. The stock hit a new 52-week high of $125.26 in the previous session. KLA-Tencor has gained 38.6% since the start of the year compared to the 20.1% move for the Zacks Computer and Technology sector and the 31.5% return for the Zacks Semiconductor Equipment - Wafer Fabrication industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on January 29, 2019, KLA-Tencor reported EPS of $2.44 versus consensus estimate of $2.2 while it beat the consensus revenue estimate by 4.49%.

For the current fiscal year, KLA-Tencor is expected to post earnings of $8.43 per share on $4.52 billion in revenues. This represents a 5.38% change in EPS on a 11.86% change in revenues. For the next fiscal year, the company is expected to earn $9.39 per share on $5.27 billion in revenues. This represents a year-over-year change of 11.33% and 16.68%, respectively.

Valuation Metrics

KLA-Tencor may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

KLA-Tencor has a Value Score of B. The stock's Growth and Momentum Scores are C and C, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 14.7X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 14.6X versus its peer group's average of 11.4X. Additionally, the stock has a PEG ratio of 1.32. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, KLA-Tencor currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if KLA-Tencor meets the list of requirements. Thus, it seems as though KLA-Tencor shares could still be poised for more gains ahead.

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