KLA-Tencor (KLAC) reported quarterly results most recently on July 25, after the market closed, and although it reported earnings which beat analyst's estimates by $0.03 per share the company is forecasting current-quarter earnings and revenues well below estimates. Though this manufacturer of chip-making equipment enjoyed a good FQ4 this time around the company is being hurt by the slump in personal computer demand. The stock is up 22.33% in 2013 and is beating the S&P 500, which has gained 19.01% in the same timeframe, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth picking up some more of KLAC right now for the technology sector of my dividend portfolio.
KLAC currently trades at a trailing 12-month P/E ratio of 18.2, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.27 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.76/share and I'd consider the stock cheap until at least $71.40. The one-year PEG ratio (0.87), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that KLAC is inexpensively priced based on a 1-year EPS growth rate of 21.01%.
On a financial basis the things I look for are the dividend payouts, return on assets, equity and investment. KLAC boasts a dividend of 3.08% with a payout ratio of 49.1% while sporting return on assets, equity and investment values of 10.5%, 15.9% and 13.8% respectively; which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play I believe the 3.08% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past four years. I know it's not too long of a history for the dividend growth investors at heart but every company has to start somewhere.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle territory with a value of 49.89 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is below the red line with the divergence bars flattening out in height, indicating the stock may trade sideways for the time being. As for the stock price itself ($58.43), I'm looking at the 20-day simple moving average to act as resistance and $57.95 to act as support for a risk/reward ratio, which plays out to be -0.82% to 1.56%.
- The company announced a $0.45 per share quarterly dividend payable on September 3, 2013, with an ex-date of August 14, 2013. This $0.45 dividend marks a 12.5% increase from the previous quarterly payout of $0.40.
- The company issued downside guidance following its FQ4 earnings beat with FQ1 earnings of $0.53-$0.73 versus an estimated $0.85 and revenues of $620-$680 million versus an expected $737 million.
- The company had earnings of $0.82 per share (beating analyst's estimates by $0.03) on revenue of $720 million.
KLAC is inexpensively valued based on future earnings and on future growth prospects (1-year outlook). Financially, the dividend payout ratio is low and I don't doubt that management will continue to increase the dividend, but probably not at a double-digit clip. The downside guidance of earnings troubles me a bit and makes me want to try and find something else to buy in the tech sector, which pays a dividend. The technical situation of how the stock is currently trading is what is telling me that it can trade a bit lower for now as the stock has downward trajectory on the RSI chart. I'm going to buy a small batch in the stock for now and start searching for a new dividend-paying tech stock to replace it with.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!