Intrinsic value of KLA-Tencor - KLAC

Previous Close

$90.26

  Intrinsic Value

$269.79

stock screener

  Rating & Target

str. buy

+199%

  Value-price divergence*

+17%

Previous close

$90.26

 
Intrinsic value

$269.79

 
Up/down potential

+199%

 
Rating

str. buy

 
Value-price divergence*

+17%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of KLAC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.04
  28.40
  26.06
  23.95
  22.06
  20.35
  18.82
  17.44
  16.19
  15.07
  14.07
  13.16
  12.34
  11.61
  10.95
  10.35
  9.82
  9.34
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
  6.68
  6.51
  6.36
  6.22
  6.10
Revenue, $m
  2,984
  3,831
  4,830
  5,987
  7,308
  8,795
  10,450
  12,272
  14,259
  16,408
  18,716
  21,179
  23,793
  26,555
  29,462
  32,512
  35,705
  39,038
  42,513
  46,132
  49,897
  53,811
  57,880
  62,107
  66,501
  71,067
  75,814
  80,751
  85,888
  91,234
  96,801
Variable operating expenses, $m
 
  3,102
  3,901
  4,828
  5,885
  7,076
  8,401
  9,860
  11,452
  13,173
  15,021
  16,959
  19,053
  21,265
  23,593
  26,035
  28,591
  31,261
  34,043
  36,941
  39,956
  43,091
  46,348
  49,734
  53,252
  56,909
  60,710
  64,663
  68,776
  73,058
  77,516
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,024
  3,102
  3,901
  4,828
  5,885
  7,076
  8,401
  9,860
  11,452
  13,173
  15,021
  16,959
  19,053
  21,265
  23,593
  26,035
  28,591
  31,261
  34,043
  36,941
  39,956
  43,091
  46,348
  49,734
  53,252
  56,909
  60,710
  64,663
  68,776
  73,058
  77,516
Operating income, $m
  960
  730
  929
  1,159
  1,422
  1,719
  2,048
  2,411
  2,807
  3,235
  3,695
  4,219
  4,740
  5,290
  5,870
  6,477
  7,113
  7,777
  8,470
  9,191
  9,941
  10,721
  11,531
  12,373
  13,249
  14,158
  15,104
  16,088
  17,111
  18,176
  19,285
EBITDA, $m
  1,027
  802
  1,012
  1,254
  1,530
  1,842
  2,188
  2,570
  2,986
  3,436
  3,920
  4,435
  4,983
  5,561
  6,170
  6,809
  7,477
  8,176
  8,903
  9,661
  10,450
  11,270
  12,122
  13,007
  13,927
  14,883
  15,878
  16,911
  17,987
  19,107
  20,273
Interest expense (income), $m
  120
  116
  162
  217
  280
  352
  433
  523
  622
  730
  847
  973
  1,107
  1,249
  1,399
  1,558
  1,724
  1,898
  2,079
  2,268
  2,465
  2,670
  2,883
  3,105
  3,335
  3,574
  3,823
  4,081
  4,350
  4,629
  4,921
Earnings before tax, $m
  858
  614
  766
  942
  1,143
  1,367
  1,616
  1,889
  2,185
  2,505
  2,848
  3,247
  3,633
  4,041
  4,470
  4,920
  5,390
  5,880
  6,391
  6,923
  7,476
  8,050
  8,648
  9,269
  9,914
  10,584
  11,282
  12,007
  12,761
  13,547
  14,365
Tax expense, $m
  154
  166
  207
  254
  309
  369
  436
  510
  590
  676
  769
  877
  981
  1,091
  1,207
  1,328
  1,455
  1,588
  1,726
  1,869
  2,018
  2,174
  2,335
  2,503
  2,677
  2,858
  3,046
  3,242
  3,446
  3,658
  3,878
Net income, $m
  704
  448
  559
  688
  834
  998
  1,180
  1,379
  1,595
  1,829
  2,079
  2,370
  2,652
  2,950
  3,263
  3,591
  3,934
  4,292
  4,665
  5,053
  5,457
  5,877
  6,313
  6,766
  7,237
  7,727
  8,236
  8,765
  9,316
  9,889
  10,486

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,492
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  4,962
  6,375
  8,036
  9,962
  12,159
  14,634
  17,387
  20,419
  23,725
  27,301
  31,141
  35,239
  39,589
  44,185
  49,022
  54,097
  59,409
  64,955
  70,738
  76,759
  83,023
  89,536
  96,306
  103,340
  110,650
  118,248
  126,147
  134,361
  142,908
  151,803
  161,067
Adjusted assets (=assets-cash), $m
  2,470
  6,375
  8,036
  9,962
  12,159
  14,634
  17,387
  20,419
  23,725
  27,301
  31,141
  35,239
  39,589
  44,185
  49,022
  54,097
  59,409
  64,955
  70,738
  76,759
  83,023
  89,536
  96,306
  103,340
  110,650
  118,248
  126,147
  134,361
  142,908
  151,803
  161,067
Revenue / Adjusted assets
  1.208
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
  0.601
Average production assets, $m
  304
  391
  493
  611
  745
  897
  1,066
  1,252
  1,454
  1,674
  1,909
  2,160
  2,427
  2,709
  3,005
  3,316
  3,642
  3,982
  4,336
  4,705
  5,089
  5,489
  5,904
  6,335
  6,783
  7,249
  7,733
  8,237
  8,761
  9,306
  9,874
Working capital, $m
  2,866
  479
  604
  748
  913
  1,099
  1,306
  1,534
  1,782
  2,051
  2,339
  2,647
  2,974
  3,319
  3,683
  4,064
  4,463
  4,880
  5,314
  5,767
  6,237
  6,726
  7,235
  7,763
  8,313
  8,883
  9,477
  10,094
  10,736
  11,404
  12,100
Total debt, $m
  3,058
  4,274
  5,704
  7,362
  9,254
  11,385
  13,755
  16,366
  19,212
  22,291
  25,598
  29,126
  32,871
  36,828
  40,993
  45,363
  49,936
  54,711
  59,690
  64,874
  70,268
  75,876
  81,704
  87,761
  94,055
  100,597
  107,397
  114,470
  121,829
  129,488
  137,463
Total liabilities, $m
  4,273
  5,489
  6,919
  8,577
  10,469
  12,600
  14,970
  17,581
  20,427
  23,506
  26,813
  30,341
  34,086
  38,043
  42,208
  46,578
  51,151
  55,926
  60,905
  66,089
  71,483
  77,091
  82,919
  88,976
  95,270
  101,812
  108,612
  115,685
  123,044
  130,703
  138,678
Total equity, $m
  689
  886
  1,117
  1,385
  1,690
  2,034
  2,417
  2,838
  3,298
  3,795
  4,329
  4,898
  5,503
  6,142
  6,814
  7,520
  8,258
  9,029
  9,833
  10,669
  11,540
  12,446
  13,386
  14,364
  15,380
  16,436
  17,534
  18,676
  19,864
  21,101
  22,388
Total liabilities and equity, $m
  4,962
  6,375
  8,036
  9,962
  12,159
  14,634
  17,387
  20,419
  23,725
  27,301
  31,142
  35,239
  39,589
  44,185
  49,022
  54,098
  59,409
  64,955
  70,738
  76,758
  83,023
  89,537
  96,305
  103,340
  110,650
  118,248
  126,146
  134,361
  142,908
  151,804
  161,066
Debt-to-equity ratio
  4.438
  4.820
  5.110
  5.320
  5.480
  5.600
  5.690
  5.770
  5.830
  5.870
  5.910
  5.950
  5.970
  6.000
  6.020
  6.030
  6.050
  6.060
  6.070
  6.080
  6.090
  6.100
  6.100
  6.110
  6.120
  6.120
  6.120
  6.130
  6.130
  6.140
  6.140
Adjusted equity ratio
  -0.730
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  704
  448
  559
  688
  834
  998
  1,180
  1,379
  1,595
  1,829
  2,079
  2,370
  2,652
  2,950
  3,263
  3,591
  3,934
  4,292
  4,665
  5,053
  5,457
  5,877
  6,313
  6,766
  7,237
  7,727
  8,236
  8,765
  9,316
  9,889
  10,486
Depreciation, amort., depletion, $m
  67
  73
  83
  95
  108
  123
  140
  159
  179
  201
  224
  216
  243
  271
  301
  332
  364
  398
  434
  471
  509
  549
  590
  633
  678
  725
  773
  824
  876
  931
  987
Funds from operations, $m
  700
  521
  642
  783
  942
  1,121
  1,320
  1,537
  1,774
  2,030
  2,304
  2,586
  2,895
  3,221
  3,564
  3,923
  4,299
  4,690
  5,099
  5,524
  5,966
  6,426
  6,903
  7,400
  7,915
  8,451
  9,009
  9,589
  10,192
  10,820
  11,474
Change in working capital, $m
  -60
  106
  125
  145
  165
  186
  207
  228
  248
  269
  288
  308
  327
  345
  363
  381
  399
  417
  434
  452
  471
  489
  509
  528
  549
  571
  593
  617
  642
  668
  696
Cash from operations, $m
  760
  415
  517
  638
  777
  935
  1,113
  1,310
  1,526
  1,761
  2,015
  2,278
  2,568
  2,876
  3,200
  3,542
  3,900
  4,274
  4,664
  5,072
  5,496
  5,936
  6,395
  6,871
  7,366
  7,881
  8,415
  8,971
  9,550
  10,151
  10,778
Maintenance CAPEX, $m
  0
  -30
  -39
  -49
  -61
  -75
  -90
  -107
  -125
  -145
  -167
  -191
  -216
  -243
  -271
  -301
  -332
  -364
  -398
  -434
  -471
  -509
  -549
  -590
  -633
  -678
  -725
  -773
  -824
  -876
  -931
New CAPEX, $m
  -32
  -87
  -102
  -118
  -135
  -152
  -169
  -186
  -203
  -219
  -235
  -251
  -267
  -282
  -297
  -311
  -326
  -340
  -354
  -369
  -384
  -399
  -415
  -431
  -448
  -466
  -484
  -504
  -524
  -545
  -568
Cash from investing activities, $m
  145
  -117
  -141
  -167
  -196
  -227
  -259
  -293
  -328
  -364
  -402
  -442
  -483
  -525
  -568
  -612
  -658
  -704
  -752
  -803
  -855
  -908
  -964
  -1,021
  -1,081
  -1,144
  -1,209
  -1,277
  -1,348
  -1,421
  -1,499
Free cash flow, $m
  905
  297
  376
  471
  581
  709
  854
  1,017
  1,198
  1,396
  1,612
  1,836
  2,086
  2,351
  2,633
  2,930
  3,242
  3,570
  3,912
  4,269
  4,641
  5,028
  5,431
  5,850
  6,285
  6,737
  7,206
  7,695
  8,202
  8,730
  9,279
Issuance/(repayment) of debt, $m
  -135
  1,216
  1,430
  1,657
  1,892
  2,131
  2,371
  2,610
  2,847
  3,079
  3,306
  3,528
  3,745
  3,957
  4,165
  4,370
  4,573
  4,775
  4,979
  5,184
  5,394
  5,608
  5,828
  6,057
  6,294
  6,542
  6,801
  7,073
  7,358
  7,659
  7,976
Issuance/(repurchase) of shares, $m
  -143
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -291
  1,216
  1,430
  1,657
  1,892
  2,131
  2,371
  2,610
  2,847
  3,079
  3,306
  3,528
  3,745
  3,957
  4,165
  4,370
  4,573
  4,775
  4,979
  5,184
  5,394
  5,608
  5,828
  6,057
  6,294
  6,542
  6,801
  7,073
  7,358
  7,659
  7,976
Total cash flow (excl. dividends), $m
  616
  1,513
  1,807
  2,128
  2,473
  2,840
  3,225
  3,627
  4,045
  4,475
  4,919
  5,364
  5,831
  6,308
  6,798
  7,300
  7,815
  8,345
  8,891
  9,453
  10,034
  10,636
  11,259
  11,906
  12,579
  13,278
  14,007
  14,767
  15,561
  16,389
  17,255
Retained Cash Flow (-), $m
  -268
  -197
  -231
  -268
  -305
  -344
  -383
  -421
  -460
  -497
  -534
  -570
  -605
  -639
  -672
  -705
  -738
  -771
  -804
  -837
  -871
  -905
  -941
  -978
  -1,016
  -1,056
  -1,098
  -1,142
  -1,188
  -1,236
  -1,288
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,316
  1,576
  1,861
  2,168
  2,496
  2,842
  3,206
  3,585
  3,978
  4,385
  4,795
  5,226
  5,670
  6,125
  6,594
  7,077
  7,574
  8,087
  8,616
  9,164
  9,731
  10,318
  10,928
  11,563
  12,222
  12,909
  13,625
  14,373
  15,153
  15,967
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  1,262
  1,443
  1,619
  1,785
  1,934
  2,063
  2,166
  2,241
  2,285
  2,299
  2,277
  2,230
  2,156
  2,056
  1,936
  1,798
  1,648
  1,489
  1,327
  1,164
  1,006
  856
  716
  589
  475
  377
  292
  222
  165
  120
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

KLA-Tencor Corporation designs, manufactures, and markets process control and yield management solutions worldwide. It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products, and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology, and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products. The company also provides light emitting diode (LED), power device, and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology, and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection, and data management products for data storage media/head manufacturing; and stylus and optical profiling, and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications. It offers its products and services for bare wafer, IC, lithography reticle, and disk manufacturers. The company serves semiconductor and related nanoelectronics, LED, and data storage industries, as well as general materials research industries. KLA-Tencor Corporation was founded in 1975 and is headquartered in Milpitas, California.

FINANCIAL RATIOS  of  KLA-Tencor (KLAC)

Valuation Ratios
P/E Ratio 20
Price to Sales 4.7
Price to Book 20.4
Price to Tangible Book
Price to Cash Flow 18.5
Price to Free Cash Flow 19.3
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -30.4%
Cap. Spend. - 3 Yr. Gr. Rate -15.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 443.8%
Total Debt to Equity 443.8%
Interest Coverage 8
Management Effectiveness
Return On Assets 16.4%
Ret/ On Assets - 3 Yr. Avg. 12.2%
Return On Total Capital 19.1%
Ret/ On T. Cap. - 3 Yr. Avg. 13.9%
Return On Equity 126.8%
Return On Equity - 3 Yr. Avg. 53.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 61.1%
Gross Margin - 3 Yr. Avg. 58.7%
EBITDA Margin 35%
EBITDA Margin - 3 Yr. Avg. 28.8%
Operating Margin 32.2%
Oper. Margin - 3 Yr. Avg. 25.8%
Pre-Tax Margin 28.8%
Pre-Tax Margin - 3 Yr. Avg. 23.1%
Net Profit Margin 23.6%
Net Profit Margin - 3 Yr. Avg. 18.8%
Effective Tax Rate 17.9%
Eff/ Tax Rate - 3 Yr. Avg. 18.1%
Payout Ratio 49.1%

KLAC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KLAC stock intrinsic value calculation we used $2984 million for the last fiscal year's total revenue generated by KLA-Tencor. The default revenue input number comes from 2016 income statement of KLA-Tencor. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KLAC stock valuation model: a) initial revenue growth rate of 28.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for KLAC is calculated based on our internal credit rating of KLA-Tencor, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of KLA-Tencor.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KLAC stock the variable cost ratio is equal to 81.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KLAC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for KLA-Tencor.

Corporate tax rate of 27% is the nominal tax rate for KLA-Tencor. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KLAC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KLAC are equal to 10.2%.

Life of production assets of 10 years is the average useful life of capital assets used in KLA-Tencor operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KLAC is equal to 12.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $689 million for KLA-Tencor - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 156.605 million for KLA-Tencor is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of KLA-Tencor at the current share price and the inputted number of shares is $14.1 billion.

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COMPANY NEWS

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▶ Are the Semis Now on Shaky Ground?   [Aug-06-17 02:00PM  TheStreet.com]
▶ KLA-Tencor beats Street 4Q forecasts   [Jul-27-17 10:36PM  Associated Press]
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▶ Is KLA-Tencor (KLAC) a Great Growth Stock?   [Jul-11-17 08:30AM  Zacks]
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▶ KLA-Tencor Is Still Pointed Higher, but Lock in Gains   [May-19-17 04:03PM  TheStreet.com]
▶ KLA-Tencor Announces Upcoming Investor Presentation   [May-18-17 06:15PM  PR Newswire]
▶ Is KLA-Tencor (KLAC) a Great Growth Stock?   [May-15-17 08:38AM  Zacks]
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▶ Intel Tumbles On Just-Shy Sales, But These 3 Chip Plays Beat   [Apr-27-17 06:55PM  Investor's Business Daily]
▶ KLA-Tencor tops Street 3Q forecasts   [04:58PM  Associated Press]
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▶ Silicon Valley Insider Trader Busted Ahead of Failed Merger   [Mar-17-17 10:35AM  24/7 Wall St.]
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▶ Why Analysts and Investors Are Optimistic about AMAT Stock   [Feb-20-17 10:35AM  at Market Realist]
Stock chart of KLAC Financial statements of KLAC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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