Things are Clicking At KLAC

Oct.26.06 | About: KLA-Tencor Corporation (KLAC)

Nice day Wednesday for KLA-Tencor (NASDAQ:KLAC). Late Tuesday, the semiconductor equipment company reported revenue for the fiscal first quarter ended Sept. 30 of $630 million, beating the Street consensus of $624 million. The company also forecast that fiscal second quarter revenue would be between $650 million and $675 million, versus the Street consensus of $646.9 million.

The company did not report detailed results, due to the usual reason: an ongoing stock-options backdating scandal. KLA said that it is in the process of restateing financial statements to reflect retroactively priced options, most of of them awarded between July 1, 1997 and June 30, 2002; the company said it expects to take non-cash charges of not more than $400 million.

All of that provided pretty popular on the Street.

Also popular: The company hinted that it might make a large share repurchase with some of its $2.4 billion in cash. On the conference call, KLA CFO Jeff Hall said in response to a question about the cash that “we haven’t exactly finalized 100% on the execution plan, so I don’t really want to preannounce here, but I think it is a reasonably safe bet that cash is coming down pretty significantly from where we are today. As soon as we get through the restatement, you’ll see us come out with an announcement about what we’re going to do and start executing on it and driving us to what we think is a more optimal structure.”

Here’s a sampler of some of the Street comments from earlier today:

  • Robert Maire, Needham: We are upgrading the shares of KLA-Tencor to Buy from Hold with a one year price target of $66…In our view, most of the uncertainty of the options probe, which had caused our downgrade in the first place, is now behind us, allowing investors to once again focus onthe continued positive long-term outlook. Even though the company can’t report full results, we were happy with the quarter and guidance going forward.
  • Timothy Arcuri, Citigroup: We remain impressed by KLA-Tencor’s continued dominance of the process diagnostics and control market and rate KLAC as a top idea for new money due to 1) closure of options issue (potentially by month end), 2)big internal restructuring that should boost margins, and 3) big upside to 2007 EPS…Reiterate Buy.
  • Bill Ong, American Technology Research: Reiterating our Neutral rating on KLAC along with the rest of the semi equipment sector as we believe orders have slowed in [the second half of 2006].
  • Satya Kumar, Credit Suisse: Positive catalysts ahead for KLAC include a significant buyback that is yet to be announced and [long term] improvements to [operating margins] through increased focus on execution. That said, stock looks a bit stretched…we’d be looking to book profits above our [price target] of $45.
  • Raj Seth, Cowen: Management finally acknowledged that “it’s a safe bet that cash is coming down significantly’ (will announce plan post restatement) which likely takes stock up. Evolving restructuring story sounds promising. We see 20%-plus upside relative to the market over next 12 months.

KLA on Wednesday gained $3.83 to $49.59.