Teradyne (TER) & KLA-Tencor Corp (KLAC) Critical Review

KLA-Tencor Corp (NASDAQ: KLAC) and Teradyne (NYSE:TER) are both mid-cap technology companies, but which is the superior investment? We will compare the two companies based on the strength of their valuation, risk, dividends, earnings, analyst recommendations, institutional ownership and profitability.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for KLA-Tencor Corp and Teradyne, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
KLA-Tencor Corp 2 3 7 1 2.54
Teradyne 0 2 9 0 2.82

KLA-Tencor Corp presently has a consensus price target of $98.90, suggesting a potential upside of 9.48%. Teradyne has a consensus price target of $35.75, suggesting a potential upside of 6.78%. Given KLA-Tencor Corp’s higher probable upside, equities research analysts clearly believe KLA-Tencor Corp is more favorable than Teradyne.

Insider and Institutional Ownership

92.0% of KLA-Tencor Corp shares are owned by institutional investors. Comparatively, 93.7% of Teradyne shares are owned by institutional investors. 0.3% of KLA-Tencor Corp shares are owned by insiders. Comparatively, 0.6% of Teradyne shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares KLA-Tencor Corp and Teradyne’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
KLA-Tencor Corp 27.29% 83.07% 18.93%
Teradyne 20.08% 21.25% 14.64%

Volatility and Risk

KLA-Tencor Corp has a beta of 1.62, meaning that its stock price is 62% more volatile than the S&P 500. Comparatively, Teradyne has a beta of 0.95, meaning that its stock price is 5% less volatile than the S&P 500.

Dividends

KLA-Tencor Corp pays an annual dividend of $2.16 per share and has a dividend yield of 2.4%. Teradyne pays an annual dividend of $0.28 per share and has a dividend yield of 0.8%. KLA-Tencor Corp pays out 36.7% of its earnings in the form of a dividend. Teradyne pays out 14.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. KLA-Tencor Corp has increased its dividend for 2 consecutive years. KLA-Tencor Corp is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Valuation & Earnings

This table compares KLA-Tencor Corp and Teradyne’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
KLA-Tencor Corp $3.48 billion 4.07 $1.33 billion $5.88 15.36
Teradyne $1.94 billion 3.43 $547.01 million $1.93 17.35

KLA-Tencor Corp has higher revenue and earnings than Teradyne. KLA-Tencor Corp is trading at a lower price-to-earnings ratio than Teradyne, indicating that it is currently the more affordable of the two stocks.

Summary

KLA-Tencor Corp beats Teradyne on 12 of the 18 factors compared between the two stocks.

KLA-Tencor Corp Company Profile

KLA-Tencor Corporation (KLA-Tencor) is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. The Company’s products are also used in a number of other high technology industries, including the light emitting diode (LED) and data storage industries, as well as general materials research. Its products and services are used by bare wafer, integrated circuit (IC), lithography reticle (reticle or mask) and disk manufacturers around the world. The Company’s inspection and metrology products and related offerings are categorized in various groups, including Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, LED, Power Device and Compound Semiconductor Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (MEMS) Manufacturing, and General Purpose/Lab Applications. It also provides refurbished KLA-Tencor tools as service and support for its products.

Teradyne Company Profile

Teradyne, Inc. supplies automation equipment for test and industrial applications. The Company designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, communications, and aerospace and defense industries. Its segments include Semiconductor Test, which includes operations related to the design, manufacturing and marketing of semiconductor test products and services; System Test, which includes operations related to the design, manufacturing and marketing of products and services for defense/aerospace instrumentation test, storage test and circuit-board test; Wireless Test, which includes operations related to the design, manufacturing and marketing of wireless test products and services, and Industrial Automation, which includes operations related to the design, manufacturing and marketing of collaborative robots.

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