On Monday, Deutsche Bank (ETR:DBKGn) adjusted its stance on KLA Corporation (NASDAQ:KLAC), a key player in the semiconductor equipment sector. Analyst Melissa Weathers reduced the price target on KLA shares to $725 from the previous $750 while maintaining a Buy rating on the stock. For context, Applied Materials (NASDAQ:AMAT), another major player in this space with a market capitalization of $137.8 billion, has maintained strong fundamentals with a P/E ratio of 19.67 and an overall "GOOD" financial health score according to InvestingPro.
The revision reflects a more cautious outlook for the Wafer Fabrication Equipment (WFE) market as the analyst anticipates a "choppy" environment extending into 2025. The forecast for the calendar year 2025 (CY25E) WFE has been adjusted to flat year-over-year growth compared to an earlier prediction of a 5% increase.
Weathers provided insight into the challenges facing the industry, noting both positive and negative factors that are influencing the sector. The analyst highlighted an extensive range of potential outcomes for the CY26E WFE, estimating it could be anywhere between $94 billion to $117 billion, which underscores the importance of selectivity in investments within the semiconductor capital equipment sector.
In response to the evolving market conditions, Deutsche Bank has recalibrated its company-specific forecasts, now placing them approximately 2-5% below the consensus estimates on the Street. The valuation methodologies have also been adjusted to be based on CY26E earnings per share (EPS) as opposed to the CY25E EPS previously used.
Despite the downward revisions, Deutsche Bank continues to favor KLA Corporation as a defensive pick within the U.S. semiconductor capital equipment sector. The firm maintains its Buy rating for KLA due to the company's perceived resilience in a challenging market. In contrast, Deutsche Bank is preserving its Hold ratings on Applied Materials (AMAT) and Lam Research (NASDAQ:LRCX) until there is greater clarity on the timing and magnitude of a broader cyclical recovery within the industry.
According to InvestingPro, AMAT's analyst consensus remains positive, with price targets ranging from $155 to $250, suggesting potential upside. For deeper insights into the semiconductor equipment sector and access to comprehensive Pro Research Reports covering 1,400+ US stocks, consider exploring InvestingPro's advanced analysis tools.
In other recent news, Applied Materials, the semiconductor equipment giant, has been the subject of multiple analyst revisions. Morgan Stanley (NYSE:MS) downgraded the company's stock from Equalweight to Underweight due to concerns over the near-term operating environment in key end-markets.
TD Cowen, Wolfe Research, and Needham also adjusted their price targets for Applied Materials, with TD Cowen reducing its price target to $230 but maintaining a Buy rating, while Wolfe Research and Needham revised their targets to $230 and $225 respectively.
Despite these adjustments, Applied Materials reported strong financial performance with an annual revenue of $27.2 billion and non-GAAP earnings per share rising by 7.5% to $8.65. For Q1 2025, the company anticipates $7.15 billion in revenue and non-GAAP EPS of $2.29.
Furthermore, despite new semiconductor technology export regulations, Applied Materials maintains its business outlook for the first quarter of fiscal 2025. This sentiment is supported by 14 analysts who have recently revised their earnings expectations upward.
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