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KLA-Tencor Corp Valuation – January 2019 $KLAC

Company Profile (excerpt from Reuters): KLA-Tencor Corporation (KLA-Tencor), incorporated on July 9, 1975, is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The Company’s products are also used in a number of other high technology industries, including the light emitting diode (LED) and data storage industries, as well as general materials research. Its products and services are used by bare wafer, integrated circuit (IC), lithography reticle (reticle or mask) and disk manufacturers around the world. These customers turn to the Company for inline wafer and IC defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension (CD) metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions, wafer shape and stress metrology; computational lithography tools, and overall yield and fab-wide data management and analysis systems. The Company’s inspection and metrology products and related offerings are categorized in various groups, including Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, LED, Power Device and Compound Semiconductor Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as service and support for its products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of KLAC – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $15,698,720,555 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.45 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 91.67% Pass
6. Moderate PEmg Ratio PEmg < 20 16.29 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 10.10 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.45 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.70 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.22
MG Growth Estimate 14.02%
MG Value $227.47
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $90.25
MG Value based on 0% Growth $52.90
Market Implied Growth Rate 3.90%
Current Price $101.39
% of Intrinsic Value 44.57%

KLA-Tencor Corp qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.22 in 2015 to an estimated $6.22 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.9% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into KLA-Tencor Corp revealed the company was trading above its Graham Number of $45.4. The company pays a dividend of $2.52 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.29, which was below the industry average of 33.25, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.84.

KLA-Tencor Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.84
Graham Number $45.40
PEmg 16.29
Current Ratio 3.45
PB Ratio 10.10
Current Dividend $2.52
Dividend Yield 2.49%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $4,521,044,000
Total Current Liabilities $1,310,930,000
Long-Term Debt $2,237,890,000
Total Assets $5,645,109,000
Intangible Assets $385,557,000
Total Liabilities $4,077,740,000
Shares Outstanding (Diluted Average) 156,083,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.82
Jun2018 $5.10
Jun2017 $5.88
Jun2016 $4.49
Jun2015 $2.24
Jun2014 $3.47
Jun2013 $3.21
Jun2012 $4.44
Jun2011 $4.66
Jun2010 $1.23
Jun2009 -$3.07
Jun2008 $1.95
Jun2007 $2.61
Jun2006 $1.86
Jun2005 $2.21
Jun2004 $1.05
Jun2003 $0.48
Jun2002 $1.10
Jun2001 $0.34
Jun2000 $1.32
Jun1999 $0.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.22
Jun2018 $4.70
Jun2017 $4.28
Jun2016 $3.51
Jun2015 $3.22
Jun2014 $3.60
Jun2013 $3.15
Jun2012 $2.69
Jun2011 $1.70
Jun2010 $0.45
Jun2009 $0.41
Jun2008 $2.08
Jun2007 $1.98
Jun2006 $1.56
Jun2005 $1.28
Jun2004 $0.83
Jun2003 $0.70

Recommended Reading:

Other ModernGraham posts about the company

KLA-Tencor Corp Valuation – March 2018 $KLAC
KLA-Tencor Corp Valuation – July 2016 $KLAC
KLA-Tencor Corp Valuation – January 2016 Update $KLAC
KLA-Tencor Corporation Analysis – September 2015 Update $KLAC
10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015

Other ModernGraham posts about related companies

TE Connectivity Ltd Valuation – January 2019 $TEL
NVIDIA Corp Valuation – January 2019 $NVDA
Seagate Technology PLC Valuation – January 2019 $STX
Corning Inc Valuation – January 2019 $GLW
HP Inc Valuation – December 2018 $HPQ
Intel Corp Valuation – November 2018 $INTC
Apple Inc Valuation – November 2018 $AAPL
Littelfuse Inc Valuation – September 2018 $LFUS
CTS Corporation Valuation – August 2018 $CTS
Kopin Corp Valuation – August 2018 $KOPN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

KLA-Tencor Corp Valuation – March 2018 $KLAC

Company Profile (excerpt from Reuters): KLA-Tencor Corporation (KLA-Tencor), incorporated on July 9, 1975, is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The Company’s products are also used in a number of other high technology industries, including the light emitting diode (LED) and data storage industries, as well as general materials research. Its products and services are used by bare wafer, integrated circuit (IC), lithography reticle (reticle or mask) and disk manufacturers around the world. These customers turn to the Company for inline wafer and IC defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension (CD) metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions, wafer shape and stress metrology; computational lithography tools, and overall yield and fab-wide data management and analysis systems. The Company’s inspection and metrology products and related offerings are categorized in various groups, including Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, LED, Power Device and Compound Semiconductor Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as service and support for its products.

KLAC Chart

KLAC data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of KLAC – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,691,001,025 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.73 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 432.27% Pass
6. Moderate PEmg Ratio PEmg < 20 23.46 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 13.62 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.73 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.78 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.54
MG Growth Estimate 3.91%
MG Value $74.11
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $65.87
MG Value based on 0% Growth $38.61
Market Implied Growth Rate 7.48%
Current Price $106.57
% of Intrinsic Value 143.81%

KLA-Tencor Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.6 in 2014 to an estimated $4.54 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.48% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into KLA-Tencor Corp revealed the company was trading above its Graham Number of $29.71. The company pays a dividend of $2.14 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 23.46, which was below the industry average of 48.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.1.

KLA-Tencor Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.10
Graham Number $29.71
PEmg 23.46
Current Ratio 3.73
PB Ratio 13.62
Current Dividend $2.14
Dividend Yield 2.01%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $4,353,993,000
Total Current Liabilities $1,166,548,000
Long-Term Debt $2,486,426,000
Total Assets $5,407,268,000
Intangible Assets $366,586,000
Total Liabilities $4,181,643,000
Shares Outstanding (Diluted Average) 156,587,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.64
Jun2017 $5.88
Jun2016 $4.49
Jun2015 $2.24
Jun2014 $3.47
Jun2013 $3.21
Jun2012 $4.44
Jun2011 $4.66
Jun2010 $1.23
Jun2009 -$3.07
Jun2008 $1.95
Jun2007 $2.61
Jun2006 $1.86
Jun2005 $2.21
Jun2004 $1.05
Jun2003 $0.48
Jun2002 $1.10
Jun2001 $0.34
Jun2000 $1.32
Jun1999 $0.21
Jun1998 $0.76

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.54
Jun2017 $4.28
Jun2016 $3.51
Jun2015 $3.22
Jun2014 $3.60
Jun2013 $3.15
Jun2012 $2.69
Jun2011 $1.70
Jun2010 $0.45
Jun2009 $0.41
Jun2008 $2.08
Jun2007 $1.98
Jun2006 $1.56
Jun2005 $1.28
Jun2004 $0.83
Jun2003 $0.71
Jun2002 $0.80

Recommended Reading:

Other ModernGraham posts about the company

KLA-Tencor Corp Valuation – January 2016 Update $KLAC
KLA-Tencor Corporation Analysis – September 2015 Update $KLAC
10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – July 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – June 2015

Other ModernGraham posts about related companies

TE Connectivity Ltd Valuation – March 2018 $TEL
Juniper Networks Inc Valuation – March 2018 $JNPR
NVIDIA Corp Valuation – March 2018 $NVDA
Seagate Technology PLC Valuation – March 2018 $STX
HP Inc Valuation – February 2018 $HPQ
Intel Corp Valuation – February 2018 $INTC
Apple Inc Valuation – February 2018 $AAPL
Lam Research Corp Valuation – September 2017 $LRCX
Vicor Corp Valuation – Initial Coverage $VICR
Emerson Electric Co Valuation – August 2017 $EMR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

KLA-Tencor Corp Valuation – July 2016 $KLAC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how KLA-Tencor Corporation (KLAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The Company’s products are also used in various other industries, including the light emitting diode (LED) and data storage industries, as well as general materials research. KLA-Tencor’s products and services are used by bare wafer, integrated circuit (IC), lithography reticle and disk manufacturers around the world. These customers turn to the Company for inline wafer and IC defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension (CD) metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions, wafer shape and stress metrology; computational lithography tools, and overall yield and fab-wide data management and analysis systems.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of KLAC – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,928,217,125 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.92 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 561.74% Pass
6. Moderate PEmg Ratio PEmg < 20 22.25 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 24.82 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.92 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.06 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

KLAC value chart July 2016

EPSmg $3.40
MG Growth Estimate 3.96%
MG Value $55.78
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $49.28
MG Value based on 0% Growth $28.89
Market Implied Growth Rate 6.88%
Current Price $75.63
% of Intrinsic Value 135.58%

KLA-Tencor Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.69 in 2012 to an estimated $3.4 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.88% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

KLA-Tencor Corp receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

KLAC charts July 2016

Net Current Asset Value (NCAV) -$2.55
Graham Number $16.91
PEmg 22.25
Current Ratio 3.92
PB Ratio 24.82
Current Dividend $2.06
Dividend Yield 2.72%
Number of Consecutive Years of Dividend Growth 6

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $3,906,473,000
Total Current Liabilities $997,692,000
Long-Term Debt $3,097,306,000
Total Assets $4,782,102,000
Intangible Assets $340,830,000
Total Liabilities $4,305,530,000
Shares Outstanding (Diluted Average) 156,429,000

Earnings Per Share History

Next Fiscal Year Estimate $4.15
Jun2015 $2.24
Jun2014 $3.47
Jun2013 $3.21
Jun2012 $4.44
Jun2011 $4.66
Jun2010 $1.23
Jun2009 -$3.07
Jun2008 $1.95
Jun2007 $2.61
Jun2006 $1.86
Jun2005 $2.32
Jun2004 $1.21
Jun2003 $0.70
Jun2002 $1.10
Jun2001 $0.34
Jun2000 $1.32
Jun1999 $0.22
Jun1998 $0.76
Jun1997 $0.62
Jun1996 $1.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.40
Jun2015 $3.22
Jun2014 $3.60
Jun2013 $3.15
Jun2012 $2.69
Jun2011 $1.70
Jun2010 $0.45
Jun2009 $0.42
Jun2008 $2.11
Jun2007 $2.04
Jun2006 $1.65
Jun2005 $1.41
Jun2004 $0.94
Jun2003 $0.79
Jun2002 $0.80
Jun2001 $0.65
Jun2000 $0.81

Recommended Reading:

Other ModernGraham posts about the company

KLA-Tencor Corp Valuation – January 2016 Update $KLAC
KLA-Tencor Corporation Analysis – September 2015 Update $KLAC
10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – July 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – June 2015

Other ModernGraham posts about related companies

Linear Technology Corp Valuation – July 2016 $LLTC
Arrow Electronics Inc Valuation – July 2016 $ARW
Lam Research Corp Valuation – June 2016 $LRCX
TE Connectivity Ltd Valuation – June 2016 $TEL
Juniper Networks Inc Valuation – June 2016 $JNPR
Nvidia Corporation Valuation – June 2016 $NVDA
Intel Corporation Valuation – May 2016 $INTC
HP Inc Valuation – May 2016 $HPQ
FLIR Systems Inc Valuation – May 2016 $FLIR
NetApp Inc Valuation – March 2016 $NTAP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

KLA-Tencor Corp Valuation – January 2016 Update $KLAC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how KLA-Tencor Corp (KLAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The Company’s products are also used in various other industries, including the light emitting diode (LED) and data storage industries, as well as general materials research. KLA-Tencor’s products and services are used by bare wafer, integrated circuit (IC), lithography reticle and disk manufacturers around the world. These customers turn to the Company for inline wafer and IC defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension (CD) metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions, wafer shape and stress metrology; computational lithography tools, and overall yield and fab-wide data management and analysis systems.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of KLAC – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,714,855,963 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.02 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 493.29% Pass
6. Moderate PEmg Ratio PEmg < 20 21.65 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 35.53 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.02 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.14 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

KLAC value Chart January 2016

EPSmg $3.06
MG Growth Estimate 2.06%
MG Value $38.60
Opinion Overvalued
MG Value based on 3% Growth $44.35
MG Value based on 0% Growth $26.00
Market Implied Growth Rate 6.57%
Current Price $66.22
% of Intrinsic Value 171.55%

KLA-Tencor Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years along with the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.69 in 2012 to an estimated $3.06 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.57% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KLA-Tencor Corp (KLAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

KLAC Charts January 2016

Net Current Asset Value (NCAV) -$3.81
Graham Number $11.54
PEmg 21.65
Current Ratio 4.02
PB Ratio 35.53
Dividend Yield 3.05%
Number of Consecutive Years of Dividend Growth 6

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $3,675,418,000
Total Current Liabilities $915,241,000
Long-Term Debt $3,151,046,000
Total Assets $4,571,323,000
Intangible Assets $343,460,000
Total Liabilities $4,276,882,000
Shares Outstanding (Diluted Average) 157,984,000

Earnings Per Share History

Next Fiscal Year Estimate $3.13
Jun15 $2.24
Jun14 $3.47
Jun13 $3.21
Jun12 $4.44
Jun11 $4.66
Jun10 $1.23
Jun09 -$3.07
Jun08 $1.95
Jun07 $2.61
Jun06 $1.86
Jun05 $2.21
Jun04 $1.05
Jun03 $0.48
Jun02 $1.10
Jun01 $0.34
Jun00 $1.32
Jun99 $0.21
Jun98 $0.76
Jun97 $0.62
Jun96 $1.17

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.06
Jun15 $3.22
Jun14 $3.60
Jun13 $3.15
Jun12 $2.69
Jun11 $1.70
Jun10 $0.45
Jun09 $0.41
Jun08 $2.08
Jun07 $1.98
Jun06 $1.56
Jun05 $1.28
Jun04 $0.83
Jun03 $0.71
Jun02 $0.80
Jun01 $0.65
Jun00 $0.81

Recommended Reading:

Other ModernGraham posts about the company

KLA-Tencor Corporation Analysis – September 2015 Update $KLAC
10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – July 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – June 2015
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – June 2015

Other ModernGraham posts about related companies

Lam Research Corp Valuation – January 2016 Update $LRCX
Amphenol Corporation Valuation – January 2016 Update $APH
Arrow Electronics Inc Valuation – December 2015 Update $ARW
TE Connectivity Ltd Valuation – December 2015 Update $TEL
Broadcom Corp Valuation – November 2015 Update $BRCM
SanDisk Corp Valuation – November 2015 Update $SNDK
Corning Inc Valuation – November 2015 Update $GLW
Intel Corp Valuation – November 2015 Update $INTC
FLIR Systems Inc. Valuation – November 2015 Update $FLIR
NVIDIA Corporation Valuation – November 2015 Update $NVDA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

KLA-Tencor Corporation Analysis – September 2015 Update $KLAC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how KLA-Tencor Corporation (KLAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation (KLA-Tencor) is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. KLA-Tencor is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries, and provides a comprehensive portfolio of defect inspection and metrology products, and related service, software and other offerings. The semiconductor industry is KLA-Tencor’s core focus. The Company’s products are used in a number of high technology industries, including the light emitting diode (LED) and data storage industries, as well as general materials research. Within its primary area of focus, the Company’s portfolio includes defect inspection and metrology products, and related service, software and other offerings, which helps integrated circuit (IC or chip) manufacturers manage yield throughout the entire semiconductor fabrication process.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of KLAC – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.97
MG Growth Estimate 1.55%
MG Value $34.45
Opinion Overvalued
MG Value based on 3% Growth $43.04
MG Value based on 0% Growth $25.23
Market Implied Growth Rate 3.83%
Current Price $47.98
% of Intrinsic Value 139.26%

KLA-Tencor Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the high PB ratio.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.69 in 2012 to an estimated $2.97 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 3.83% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KLA-Tencor Corporation (KLAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

KLAC Charts August 2015

Net Current Asset Value (NCAV) -$3.12
Graham Number $13.01
PEmg 16.17
Current Ratio 3.90
PB Ratio 18.22
Dividend Yield 4.17%
Number of Consecutive Years of Dividend Growth 6

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $3,904,576,000
Total Current Liabilities $1,001,763,000
Long-Term Debt $3,173,435,000
Total Assets $4,826,012,000
Intangible Assets $347,158,000
Total Liabilities $4,404,573,000
Shares Outstanding (Diluted Average) 160,014,000

Earnings Per Share History

Next Fiscal Year Estimate $2.86
Jun15 $2.24
Jun14 $3.47
Jun13 $3.21
Jun12 $4.44
Jun11 $4.66
Jun10 $1.23
Jun09 -$3.07
Jun08 $1.95
Jun07 $2.61
Jun06 $1.86
Jun05 $2.21
Jun04 $1.05
Jun03 $0.48
Jun02 $1.10
Jun01 $0.34
Jun00 $1.32
Jun99 $0.21
Jun98 $0.76
Jun97 $0.62
Jun96 $1.17

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.97
Jun15 $3.22
Jun14 $3.60
Jun13 $3.15
Jun12 $2.69
Jun11 $1.70
Jun10 $0.45
Jun09 $0.41
Jun08 $2.08
Jun07 $1.98
Jun06 $1.56
Jun05 $1.28
Jun04 $0.83
Jun03 $0.71
Jun02 $0.80
Jun01 $0.65
Jun00 $0.81

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Enterprising Dividend Stock Investor – August 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – July 2015
5 Undervalued Companies for Enterprising Investors With High Dividend Yields – June 2015
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – June 2015
The 8 Best Stocks For Value Investors This Week – 6/6/15

Other ModernGraham posts about related companies

Avago Technologies Ltd Analysis – Initial Coverage $AVGO
Arrow Electronics Inc. Analysis – Initial Coverage $ARW
TE Connectivity Limited Analysis – August 2015 Update $TEL
Broadcom Corporation Analysis – August 2015 Update $BRCM
SanDisk Corporation Analysis – August 2015 Update $SNDK
Corning Inc. Analysis – August 2015 Update $GLW
Intel Corporation Analysis – August 2015 Update $INTC
Advanced Micro Devices Inc. Analysis – Initial Coverage $AMD
Nvidia Corporation Analysis – August 2015 Update $NVDA
Applied Materials Inc. Analysis – August 2015 Update $AMAT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

KLA-Tencor Corporation Analysis – May 2015 Quarterly Update $KLAC

KLA_logolockup_RGBKLA-Tencor Corporation (KLAC) has shown very strong earnings growth over the last several years, which when combined with the company’s high dividend yield will immediately intrigue many investors. For example, Cory Renauer of Moaty Chowder recently wrote that the company’s strong history of dividend growth should serve investors well. Similarly, Abba’s Aces believes the company has excellent near-term growth potential, and Simple Investment Ideas argues the innovative capabilities will sustain the growth. These are great qualitative concerns that must be taken into consideration when making investment decisions.

However, Benjamin Graham, the father of value investing, taught that investors must take emotion out of the equation, as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here’s a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

KLAC Chart

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $60.27
MG Value $113.60
MG Opinion Undervalued
Value Based on 3% Growth $46.69
Value Based on 0% Growth $27.37
Market Implied Growth Rate 5.11%
Net Current Asset Value (NCAV) -$2.71
PEmg 18.72
Current Ratio 4.06
PB Ratio 19.86


Balance Sheet – March 2015

Current Assets $3,967,000,000
Current Liabilities $977,000,000
Total Debt $3,199,000,000
Total Assets $4,902,000,000
Intangible Assets $351,000,000
Total Liabilities $4,408,000,000
Outstanding Shares 162,800,000


Earnings Per Share

2015 (estimate) $2.25
2014 $3.47
2013 $3.21
2012 $4.44
2011 $4.66
2010 $1.23
2009 -$3.07
2008 $1.95
2007 $2.61
2006 $1.86
2005 $2.21


Earnings Per Share – ModernGraham

2015 (estimate) $3.22
2014 $3.60
2013 $3.15
2012 $2.69
2011 $1.70
2010 $0.45


Dividend History

KLAC Dividend Chart

Conclusion

KLA-Tencor performs well in the ModernGraham model and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of earnings stability over the last ten years along with the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.70 in 2011 to an estimated $3.22 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 5.11% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 18% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Enterprising Investors should take this information regarding the company’s valuation and proceed with further research into whether the company would be suitable for individual portfolios, as it has passed a ModernGraham review.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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KLA-Tencor Corporation Quarterly Valuation – January 2015 $KLAC

KLA_logolockup_RGBBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how KLA-Tencor Corporation (KLAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation (KLA-Tencor) is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. KLA-Tencor’s offerings include the Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, Complementary Metal-Oxide-Semiconductor (CMOS) Image Sensors Manufacturing, Solar Manufacturing, light emitting diode (LED) Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as part of its K-T Certified program for customers manufacturing larger design-rule devices, as well as service and support for its products. The Company’s products are used in a number of other industries, including the LED, data storage and photovoltaic industries, as well as general materials research.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $62.76
MG Value $129.43
MG Opinion Undervalued
Value Based on 3% Growth $49.11
Value Based on 0% Growth $28.79
Market Implied Growth Rate 5.02%
Net Current Asset Value (NCAV) -$2.05
PEmg 18.53
Current Ratio 4.30
PB Ratio 17.23

Balance Sheet – September 2014

Current Assets $4,046,000,000
Current Liabilities $942,000,000
Total Debt $3,209,000,000
Total Assets $4,987,000,000
Intangible Assets $355,000,000
Total Liabilities $4,385,000,000
Outstanding Shares 165,300,000

Earnings Per Share

2015 (estimate) $2.75
2014 $3.47
2013 $3.21
2012 $4.44
2011 $4.66
2010 $1.23
2009 -$3.07
2008 $1.95
2007 $2.61
2006 $1.86
2005 $2.21

Earnings Per Share – ModernGraham

2015 (estimate) $3.39
2014 $3.60
2013 $3.15
2012 $2.69
2011 $1.70
2010 $0.45

Dividend History

Conclusion:

KLA-Tencor Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of earnings stability over the last ten years along with the high PB ratio while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.70 in 2011 to an estimated $3.39 for 2015.  This level of demonstrated growth is greater than the market’s implied estimate of 5.02% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of KLA-Tencor Corporation (KLAC) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KLA-Tencor Corporation (KLAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in KLA-Tencor Corporation (KLAC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

KLA-Tencor Corporation Quarterly Stock Valuation – October 2014 $KLAC

KLA_logolockup_RGBBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how KLA-Tencor (KLAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation (KLA-Tencor) is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. KLA-Tencor’s offerings include the Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, Complementary Metal-Oxide-Semiconductor (CMOS) Image Sensors Manufacturing, Solar Manufacturing, light emitting diode (LED) Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as part of its K-T Certified program for customers manufacturing larger design-rule devices, as well as service and support for its products. The Company’s products are used in a number of other industries, including the LED, data storage and photovoltaic industries, as well as general materials research.
KLAC Chart

KLAC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $68.06
MG Value $142.37
MG Opinion Undervalued
Value Based on 3% Growth $53.62
Value Based on 0% Growth $31.43
Market Implied Growth Rate 4.95%
Net Current Asset Value (NCAV) $16.43
PEmg 18.40
Current Ratio 5.12
PB Ratio 3.07

Balance Sheet – 6/30/2014

Current Assets $4,586,800,000
Current Liabilities $895,600,000
Total Debt $747,900,000
Total Assets $5,538,700,000
Intangible Assets $363,100,000
Total Liabilities $1,869,300,000
Outstanding Shares 165,400,000

Earnings Per Share

2014 $3.47
2013 $3.21
2012 $4.64
2011 $4.91
2010 $1.54
2009 -$0.22
2008 $2.78
2007 $3.13
2006 $1.86
2005 $2.32
2004 $1.21

Earnings Per Share – ModernGraham

2014 $3.70
2013 $3.48
2012 $3.32
2011 $2.58
2010 $1.55
2009 $1.70

Dividend History
KLAC Dividend Chart

KLAC Dividend data by YCharts

Conclusion:

KLA-Tencor qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the company’s lack of earnings stability over the last ten years along with the high PB ratios.  The Enterprising Investor, however, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.55 in 2010 to $3.70 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 4.95% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of KLA-Tencor Corp (KLAC) for better perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KLA-Tencor Corp (KLAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in KLA-Tencor Corp (KLAC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

KLA-Tencor Corp Quarterly Valuation – July 2014 $KLAC

KLA_logolockup_RGBBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how KLA-Tencor (KLAC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation (KLA-Tencor) is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. KLA-Tencor’s offerings include the Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, Complementary Metal-Oxide-Semiconductor (CMOS) Image Sensors Manufacturing, Solar Manufacturing, light emitting diode (LED) Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as part of its K-T Certified program for customers manufacturing larger design-rule devices, as well as service and support for its products. The Company’s products are used in a number of other industries, including the LED, data storage and photovoltaic industries, as well as general materials research.KLAC Chart

KLAC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $74.61
MG Value $140.55
MG Opinion Undervalued
Value Based on 3% Growth $52.93
Value Based on 0% Growth $31.03
Market Implied Growth Rate 5.97%
Net Current Asset Value (NCAV) $16.25
PEmg 20.44
Current Ratio 5.12
PB Ratio 3.40

Balance Sheet – 3/31/2014

Current Assets $4,542,300,000
Current Liabilities $887,600,000
Total Debt $747,800,000
Total Assets $5,486,900,000
Intangible Assets $367,200,000
Total Liabilities $1,846,900,000
Outstanding Shares 165,830,000

Earnings Per Share

2014 (estimate) $3.61
2013 $3.21
2012 $4.44
2011 $4.66
2010 $1.23
2009 -$3.07
2008 $1.95
2007 $2.61
2006 $1.86
2005 $2.32
2004 $1.21

Earnings Per Share – ModernGraham

2014 (estimate) $3.65
2013 $3.15
2012 $2.69
2011 $1.70
2010 $0.45
2009 $0.42

Dividend History

KLAC Dividend Chart

KLAC Dividend data by YCharts

Conclusion:

KLA-Tencor qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the insufficient earnings stability over the last ten years as well as the high PEmg and PB ratios. The Enterprising Investor has no major concerns at this time. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities. From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.45 in 2010 to an estimated $3.65 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 5.97% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of KLA-Tencor (KLAC) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KLA-Tencor (KLAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in KLA-Tencor (KLAC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

KLA-Tencor Corp (KLAC) Quarterly Valuation – April 2014

KLA_logolockup_RGBBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how KLA-Tencor Corp fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): KLA-Tencor Corporation (KLA-Tencor) is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. KLA-Tencor’s offerings include the Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, Complementary Metal-Oxide-Semiconductor (CMOS) Image Sensors Manufacturing, Solar Manufacturing, light emitting diode (LED) Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as part of its K-T Certified program for customers manufacturing larger design-rule devices, as well as service and support for its products. The Company’s products are used in a number of other industries, including the LED, data storage and photovoltaic industries, as well as general materials research.

KLAC Chart

KLAC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $68.03
MG Value $140.68
MG Opinion Undervalued
Value Based on 3% Growth $52.98
Value Based on 0% Growth $31.06
Market Implied Growth Rate 5.06%
Net Current Asset Value (NCAV) $15.71
PEmg 18.62
Current Ratio 4.86
PB Ratio 3.19

Balance Sheet – 12/31/2013

Current Assets $4,507,500,000
Current Liabilities $928,000,000
Total Debt $747,600,000
Total Assets $5,440,700,000
Intangible Assets $352,700,000
Total Liabilities $1,890,500,000
Outstanding Shares 166,580,000

Earnings Per Share

2014 (estimate) $3.62
2013 $3.21
2012 $4.44
2011 $4.66
2010 $1.23
2009 -$3.07
2008 $1.95
2007 $2.61
2006 $1.86
2005 $2.32
2004 $1.21

Earnings Per Share – ModernGraham

2014 (estimate) $3.65
2013 $3.15
2012 $2.69
2011 $1.70
2010 $0.45
2009 $0.42

Dividend History

KLAC Dividend Chart

KLAC Dividend data by YCharts

Conclusion:

KLA-Tencor is a very intriguing company for the Enterprising Investor, but is not suitable for the Defensive Investor.  The company has shown insufficient earnings stability and trades at a PB ratio too high for the Defensive Investor; however, the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company as well as other opportunities through a review of 5 Low PEmg Companies for the Enterprising Investor and 5 Undervalued Companies for the Enterprising Investor.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from $0.45 in 2010 to an estimated $3.65 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.06% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on KLA-Tencor Corp (KLAC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in KLA-Tencor Corp (KLAC) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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