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KLA-Tencor (KLAC) Prices Senior Notes to Refinance Debt

Zacks Equity Research

KLA-Tencor Corporation KLAC recently announced the pricing of $1.2 billion aggregate principal amount of senior notes. The notes have been issued in two parts. The offering is scheduled to settle on Mar 20, 2019, subject to customary closing conditions.

The first part consists of $800 million, carrying a coupon rate of 4.10%, and will mature in 2029.The second part consists of $400 million, carrying an interest rate of 5.00%, and will expire in 2049.

The interest on each series of notes will be payable semi-annually on Mar 15 and Sep 15 of each year.

The company stated that the transaction proceeds from this offering are expected to be around $1.18 billion. This amount is likely to be used to refinance its existing debt, repurchase shares, and for other general corporate purposes.

Cash Position

At the end of fiscal second-quarter 2019, KLA-Tencor’s cash, cash equivalents and marketable securities balance was $2.69 billion compared with $2.78 billion in the last reported quarter.

Cash from operations was $282.2 million, lower than $381.4 million in the last reported quarter.

We believe that the company has a strong balance sheet, which will help it capitalize on investment opportunities and pursue strategic acquisitions, further improving growth prospects. In our view, the senior notes’ offering will bring down the company’s cost of capital, in turn strengthening its balance sheet and supporting growth.

These notes should provide financial flexibility and propel long-term growth.

Bottom Line

KLA-Tencor offers complete yield-management solutions including hardware, software and services that help improve output, and reduce overall production cost. Cost reduction is of primary importance today, as increasing competition across all growing end markets leads to greater demand for lower-cost components. Since yield-management solutions improve manufacturing costs, the demand for these products remains strong at any point in the business cycle.

Recently, KLA-Tencor updated its guidance for fiscal third-quarter 2019, following the closure of Orbotech acquisition.

We believe, Orbotech’s new products, services and solutions will diversify KLA-Tencor’s revenue base, and drive long-term growth.

The company now expects fiscal third-quarter revenues in the range of $1.025-$1.115 billion versus previous expectation of 880-$960 million. Also, KLA-Tencor now expects non-GAAP earnings in the range of $1.45-$1.79 per share and GAAP earnings within $0.94-$1.28.

KLA-Tencor Corporation Price and Consensus


KLA-Tencor Corporation Price and Consensus | KLA-Tencor Corporation Quote

Zacks Rank and Stocks to Consider

Currently, KLA-Tencor has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Expedia Group, Inc. EXPE, AMETEK, Inc. AME and Inphi Corporation IPHI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Expedia, AMETEK and Inphi is projected at 13.4%, 9.6% and 28.4%, respectively.

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