- KLA (NASDAQ:KLAC) is up 1.3% after hours following Deutsche Bank's upgrade to Buy, based largely on valuation.
- "While headlines for semicap equipment spending have continued to improve in the past few months, KLAC's stock price has meaningfully underperformed its large-cap semicap peers during this period," the bank says, pointing to quarter-to-date return of -5% vs. a peer group up 5%.
- That underperformance has come despite capital expenditure strength coming from foundry/logic, "where KLAC is overexposed."
- Amid the positive news on capex plans, DB says investor expectations are for WFE spending industrywide growing toward the high end of 25-30% this year, with continued nice growth next year - and most of the good news focusing on foundry/logic spending (see: TSMC's three-year plan to invest $100B and build multiple U.S. fabs, Samsung's investment boost, and Intel's plan for two new fabs in the foundry business in Arizona).
- Memory capex looks a little more mixed despite improving memory prices, the bank notes.
- And while multiples for the group have compressed amid concern of capex hitting a cyclical peak next year, KLA's has compressed more than the group's, it says.
- As for business fundamentals, it has increased confidence KLAC can grow its semiconductor process control business by more than 30% this year, which it doesn't think the Street is accounting for.
- Alongside the upgrade, it's keeping a price target of $375, which implies 20% upside.
- Wall Street is Bullish on the stock, as are Seeking Alpha authors. And it has a Quant Rating of Bullish.