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Results: KLA Corporation Beat Earnings Expectations And Analysts Now Have New Forecasts

Investors in KLA Corporation (NASDAQ:KLAC) had a good week, as its shares rose 3.6% to close at US$172 following the release of its quarterly results. The result was positive overall - although revenues of US$1.5b were in line with what analysts predicted, KLA surprised by delivering a statutory profit of US$2.40 per share, modestly greater than expected. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

View our latest analysis for KLA

NasdaqGS:KLAC Past and Future Earnings, February 7th 2020
NasdaqGS:KLAC Past and Future Earnings, February 7th 2020

Taking into account the latest results, the most recent consensus for KLA from 16 analysts is for revenues of US$5.80b in 2020, which is a decent 9.9% increase on its sales over the past 12 months. Statutory earnings per share are expected to leap 28% to US$9.17. Before this earnings report, analysts had been forecasting revenues of US$5.73b and earnings per share (EPS) of US$8.91 in 2020. So the consensus seems to have become somewhat more optimistic on KLA's earnings potential following these results.

The consensus price target was unchanged at US$190, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic KLA analyst has a price target of US$220 per share, while the most pessimistic values it at US$145. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the KLA's past performance and to peers in the same market. We would highlight that KLA's revenue growth is expected to slow, with forecast 9.9% increase next year well below the historical 13%p.a. growth over the last five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 8.8% next year. So it's pretty clear that, while KLA's revenue growth is expected to slow, it's expected to grow roughly in line with the industry.

The Bottom Line

The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around KLA's earnings potential next year. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. The consensus price target held steady at US$190, with the latest estimates not enough to have an impact on analysts' estimated valuations.

With that in mind, we wouldn't be too quick to come to a conclusion on KLA. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple KLA analysts - going out to 2022, and you can see them free on our platform here.

You can also view our analysis of KLA's balance sheet, and whether we think KLA is carrying too much debt, for free on our platform here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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