Analyst James Covello believes the market is over-reacting to KLA's fourth quarter order guidance. He thinks the company can considerably beat 10% sequential fourth quarter order growth given the conservative nature and strength of the current business. He says he would buy KLA-Tencor on near-term weakness and valuation. Covello adds that the company maintains a strong balance sheet.
Covello raised the $0.85 calendar 2002 earnings per share estimate to $0.94, and upped the $1.85 calendar 2003 estimate to $1.90. He estimates that the average peak multiple for KLA of 30 times, and estimates a peak stock price of $83 -- which leaves about 21% upside. At $69, the stock trades at about 36 times his new calendar 2003 EPS estimate, vs. the group mean of 45 times.