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Yesterday was a very good day for chip stocks in general, but particularly so for semiconductor equipment makers like Lam Research LRCX, Applied Materials AMAT and KLA-Tencor KLAC. The three stocks were up a respective 7.2%, 5.0% and 4.7%. Moreover, they were also up 13.2%, 12.8% and 13.1%, respectively over the past week when the S&P 500 moved just 3.1%.
Lam Research
Lam Research has already reported March quarter numbers, and the 1.0% negative surprise on earnings and 5.6% negative surprise on revenue were disappointing, although of course it could have been worse. It pays a dividend that yields 1.73%.
The limited outlook provided for sequential revenue growth across foundry logic and memory (which underinvested in 2019, leading to particular strength this year), negative gross margin impact from capacity challenges, negative impact on other expenses due to safety measures for employees and higher interest expenses related to increased drawings from the revolver. Full-year guidance wasn’t reaffirmed due to increased uncertainties although customers haven’t cut back on orders yet.
However, this was enough to warrant negative revisions to estimates. The Zacks consensus Estimate for the June quarter therefore moved down 37 cents to $4.19 in the last 30 days. Fiscal 2021 (ending June) estimate is down 83 cents to $17.14.
Valuing the shares on the forward twelve months’ earnings we see that they are trading at a 15.7X multiple, which is close to their median value over the past year and trails the S&P 500 average of 21.2X, which is at the high end of its range over the past year.
So the increase in the share price appears to be a correction from the lows to which it dropped in the third week of March.
KLA-Tencor
KLA beat the Zacks Consensus Estimate by 5.1% on earnings and 0.6% on sales, attributed to bot strong demand and good execution. The company has a significant chunk of its operations and employees in China, which appears to have contained the virus very efficiently.
The revenue outlook is slightly below March quarter levels at the midpoint but substantially higher than the year-ago number at the midpoint. Despite higher COGS and operating expenses, the EPS is also expected to remain strong as demand remains strong.
The company’s earnings estimate for the current quarter is down 5 cents to $2.35 although the estimate for 2021 (ending June) is up 12 cents.
KLAC, which typically trades at a discount to the S&P 500, is trading at a P/E that’s toward the high end of its range over the past year. So investors appear to be reacting to the company’s steadier performance in the pandemic filled world as well as the broader market scenario.