Tuesday, October 17, 2006

Calls of Note Part 4

- Citigroup comments on KLA-Tencor (NASDAQ:KLAC) after the co announced it has substantially completed its internal investigation into prior option grant practices. Monetarily, KLAC expects charges not to exceed ~$400MM with all charges non-cash (book value not impacted).

As the firm expected, no current executive was implicated in any wrongdoing (although they note Chairman Ken Levy could still be at risk). This should be seen as a big positive by investors worried about current management stability.

While a significant step in the right direction, KLAC remains in a self-imposed blackout period for stock buyback (or any broader balance sheet re-work) pending filing of regulatory documents. In order to file documents, the firm believes a meaningful amount of heavy lifting in terms of accounting + external audit work remains to be completed - suggesting a ~6-10 week timeline for filing.

KLAC remains firm's top idea for new money as big restructuring boosts margins; C2007 EPS has upside to ~$3.85 (~25% upside to Citi (ex SBC), ~60% above consensus).

Notablecalls: Citi sure continues to be positive on KLAC.

No comments: