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Summary

  • The company has great near and long-term earnings growth expectations.
  • The stock is near oversold territory, but may still have a bit more room to the down side.
  • The stock is inexpensively priced based on next year's earnings and earnings growth potential.

The last time I wrote about KLA-Tencor Corporation (NASDAQ:KLAC) I stated, "Due to the tiring seemingly bearish technicals, international volatility, and FOMC meeting next week, I'm not going to be buying a position at this price." Since the time the article was published, the stock dropped 2.06% versus the 1.37% drop the S&P 500 (NYSEARCA:SPY) posted. KLAC is engaged in the design, manufacturing and marketing of process control and yield management solutions for the semiconductor and related nano-electronics industries.

On January 23, 2014, the company reported fiscal second quarter earnings of $0.85 per share, which beat the consensus of analysts' estimates by $0.05. During the past year, the stock is up 21.82% excluding dividends (up 24.71% including dividends) and is beating the S&P 500, which has gained 14.27% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 20.09, 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 14 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.68 per share and I'd consider the stock inexpensive until about $70. The 1-year PEG ratio (0.86), 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 the company is inexpensively priced based on a 1-year EPS growth rate of 23.4%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 23.4%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 16.4%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

09Aug13

58.43

18.2

12.27

4.76

71

0.87

21.01

11Nov13

62.78

20.45

13.43

4.67

70

0.89

23.00

14Feb14

64.44

19.77

13.57

4.75

71

0.79

24.92

14Mar14

66.88

20.52

14.25

4.69

70

0.86

23.75

14Apr14

65.50

20.09

14.00

4.68

70

0.86

23.40

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investments. The company pays a dividend of 2.75% with a payout ratio of 55% of trailing 12-month earnings while sporting return on assets, equity and investment values of 10.4%, 15.8% 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 2.75% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

09Aug13

3.08

49

10.5

15.9

13.8

11Nov13

2.87

59

10.0

15.1

13.8

14Feb14

2.79

55

10.4

15.8

13.8

14Mar14

2.69

55

10.4

15.8

13.8

14Apr14

2.75

55

10.4

15.8

13.8

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock approaching oversold territory with a current value of 38.52. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum is increasing. As for the stock price itself ($65.50), I'm looking at the 50-day simple moving average (currently $66.15) to act as resistance and $65.10 to act as support for a risk/reward ratio which plays out to be -0.61% to 0.99%.

Recent News

  1. On 08Apr14 the company was downgraded to "Sector Perform" at Pac Crest.

Conclusion

Since winning my Dividend Portfolio Super Bowl, KLAC is up 6.16% against the 1.92% gain the S&P 500 has posted. Fundamentally, this company is indeed overvalued on next year's earnings and pretty inexpensive on earnings growth potential while short and long-term earnings growth expectations are excellent. Financially, this is a high yielding dividend company which is well supported by earnings and free cash flow. Technically, the stock is approaching oversold territory and can go down some more due to the market volatility. Due to the high earnings growth rate expectations, near oversold technicals, and excellent dividend yield, I will take a chance here and buy an additional small batch to my position.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long KLAC, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Is It Time To Purchase High-Yielding KLA-Tencor?