Citi Comments On KLA-Tencor, Applied Materials #1 Pick

Citi maintained a Buy rating and $80 price target on KLA-Tencor Corporation KLAC despite the stock falling following its Q2 earnings release.

Analyst Atif Malik acknowledged that the company beat expectations but guided the current quarter lower.

Malik believed that near-term, quarter-over-quarter revenue “patterns could be misleading and investors should focus” on the company’s outlook for the full year where Citi expects WFE to grow 5 to 10 percent as well as positive chipmaker capex announcements.

The firm thought KLAC is “a) best positioned to benefit from foundry 16/14nm C15 foundry ramp given outsized foundry sales exposure, b) is a potential beneficiary of increasing consolidation in the equipment space and c) superior FCF return to shareholder profile vs. peers.”

Malik did not change C2015/16 estimates as lower revenues would be more than offset by better operating expenses.

The $80 price target reflected a 14x P/E applied to the firm’s $5.74 C16E EPS estimate.

KLA-Tencor Corporation recently traded at $65.93, down 7.08 percent.