In the case of KLA-Tencor (KLAC), the market seems to have done a good job of getting the stock to the right levels as it lies just below its 2007 pre-credit crisis highs. The company is obviously leveraged to the economic recovery with the demand of semiconductors very cyclical in nature. And it would normally be a good prospect for a portfolio, however, at these prices it seems that the stock is being properly priced as all of the valuation metrics to a “T” suggest that the stock is fairly valued. I suggest that investors stay away from KLA-Tencor at these levels and look elsewhere for opportunities in semiconductors. A sharp increase or decrease in the stock would, however, bring the stock back into the conversation. Below is an in depth look at the valuation metrics.
KLA-Tencor's trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the three valuation metrics compared to their five-year averages. KLA-Tencor's current P/B ratio is 2.9 and it has averaged 2.5 over the past five years with a high of 3.6 and low of 1.6. KLA-Tencor's current P/S ratio is 2.7 and it has averaged 3 over the past five years with a high of 4.7 and low of 1.7. KLA-Tencor's current P/E ratio is 11.1 and it has averaged 20.2 over the past five years with a high of 67.2 and low of 7.8.
The consensus price target for the analysts who follow KLA-Tencor is $57. That is upside of 15% from today's stock price of $49.41 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Analysts have done a pretty decent job on forecasting the company’s results. Although, KLA-Tencor has beat EPS estimates 3 times in the past 4 quarters, the beats were relatively light. The company's EPS figures have come in between 0 cents and 13 cents from consensus estimates or about 0% to 9.5% from analyst estimates.
According to the DCF model provided by Dividend Kings, KLA-Tencor is worth $50 a share versus its current stock price of $49.41 a share. This suggests that the stock is fairly valued.
The forward valuation metric reaches the same conclusion. KLA-Tencor is currently trading at about $49 a share with analysts expecting EPS of $4.52 next year, an earnings increase of 8% year over year, for a forward P/E ratio of 10.9. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Lam Research (LRCX) is currently trading at about $42 a share with analysts expecting EPS of $3.71 next year, an earnings increase of 73% year over year, for a forward P/E ratio of 11.4. Applied Materials (AMAT) is currently trading at about $13 a share with analysts expecting EPS of $1.13 next year, an earnings increase of 49% year over year, for a forward P/E ratio of 11.5. ASML (ASML) is currently trading at about $45 a share with analysts expecting EPS of $4.18 next year, an earnings increase of 22% year over year, for a forward P/E ratio of 10.8. The mean forward P/E of KLA-Tencor's competitors is 11.2 which suggests that KLA-Tencor is fairly valued relative to its publicly traded competitors.
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