KLA Corporation Advances as Chip Equipment Stocks Rebound

• Our read: EasyAlpha grades KLA Corporation C, indicating average quality among industry peers in the S&P 500, where high profitability is offset by a demanding valuation.
• The day: The shares closed +7.3% at $185.60 as semiconductor equipment stocks rebounded across the sector.
• Watching: How the valuation multiple holds with the shares trading at 31.6 times forward earnings and 39.5% below their 52-week high of $307.03.

Shares of KLA Corporation closed +7.3% at $185.60 on Friday, September 4, marking a solid session that extended the stock's winning streak to three consecutive days. Trading volume reached 1.4x the 20-session average. The advance occurred as semiconductor equipment makers saw a broad recovery after recent selling. The stock was also featured among televised final trades. Investors also continued to evaluate the company's recent report of strong quarterly revenue and guidance for roughly $4.0 billion in the September quarter.

EasyAlpha grades KLA Corporation C, placing it in the average quality tier among industry peers in the S&P 500. In EasyAlpha's grading framework, companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E.

The company's greatest asset is its profitability. KLA Corporation generated a profit margin of 35.6% and a return on equity of 87.5%, supported by quarterly revenue growth of +15.2% year over year.

Against those operating results, valuation remains the central concern. The stock trades at 46.7 times trailing earnings and 31.6 times forward earnings. Even with Friday's advance, the shares sit 39.5% below their 52-week high of $307.03, though they remain 112.5% above the 52-week low of $87.36.

Wall Street analysts maintain a favorable stance on KLAC. Among the 29 analysts covering the company, 65.5% rate the stock a buy. Their average price target of $233.77 sits 26.0% above Friday's closing price.