Critical Review: KLA (NASDAQ:KLAC) vs. Tokyo Electron (OTCMKTS:TOELY)

KLA (NASDAQ:KLAC) and Tokyo Electron (OTCMKTS:TOELY) are both large-cap computer and technology companies, but which is the superior business? We will compare the two companies based on the strength of their profitability, valuation, earnings, institutional ownership, analyst recommendations, risk and dividends.

Dividends

KLA pays an annual dividend of $0.92 per share and has a dividend yield of 0.4%. Tokyo Electron pays an annual dividend of $1.67 per share and has a dividend yield of 0.8%. KLA pays out 26.1% of its earnings in the form of a dividend. Tokyo Electron pays out 40.4% 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 has raised its dividend for 16 consecutive years.

Profitability

This table compares KLA and Tokyo Electron’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
KLA	35.66%	91.89%	29.21%
Tokyo Electron	23.40%	22.98%	17.30%

Risk & Volatility

KLA has a beta of 1.41, meaning that its stock price is 41% more volatile than the S&P 500. Comparatively, Tokyo Electron has a beta of 1.88, meaning that its stock price is 88% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and target prices for KLA and Tokyo Electron, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
KLA	0	10	20	0	2.67
Tokyo Electron	0	0	0	1	4.00

KLA currently has a consensus target price of $218.41, indicating a potential upside of 1.73%. Given KLA’s higher probable upside, equities research analysts plainly believe KLA is more favorable than Tokyo Electron.

Insider & Institutional Ownership

86.7% of KLA shares are owned by institutional investors. Comparatively, 1.3% of Tokyo Electron shares are owned by institutional investors. 91.5% of KLA shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares KLA and Tokyo Electron”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
KLA	$12.16 billion	23.07	$4.06 billion	$3.53	60.82
Tokyo Electron	$16.23 billion	11.79	$3.82 billion	$4.13	49.52

KLA has higher earnings, but lower revenue than Tokyo Electron. Tokyo Electron is trading at a lower price-to-earnings ratio than KLA, indicating that it is currently the more affordable of the two stocks.

Summary

KLA beats Tokyo Electron on 12 of the 18 factors compared between the two stocks.

About KLA

KLA Corporation, together with its subsidiaries, engages in the design, manufacture, and marketing of process control, process-enabling, and yield management solutions for the semiconductor and related electronics industries worldwide. It operates through three segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB and Component Inspection. The company offers inspection and review tools to identify, locate, characterize, review, and analyze defects on various surfaces of patterned and unpatterned wafers; metrology systems that are used to measure pattern dimensions, film thickness, film stress, layer-to-layer alignment, pattern placement, surface topography, and electro-optical properties for wafers; chemical process control equipment; wired and wireless sensor wafers and reticles; wafer defect inspection, review, and metrology systems; reticle inspection and metrology systems; and semiconductor software solutions that provide run-time process control, defect excursion identification, process corrections, and defect classification to accelerate yield learning rates and reduce production risk. It also provides etch, plasma dicing, deposition, and other wafer processing technologies and solutions for the semiconductor and microelectronics industry. In addition, the company offers direct imaging, inspection, optical shaping, inkjet and additive printing, UV laser drilling, and computer-aided manufacturing and engineering solutions for the PCB market; inspection and electrical testing systems to identify and classify defects, as well as systems to repair defects for the display market; and inspection and metrology systems for quality control and yield improvement in advanced and traditional semiconductor packaging markets. The company was formerly known as KLA-Tencor Corporation and changed its name to KLA Corporation in July 2019. KLA Corporation was incorporated in 1975 and is headquartered in Milpitas, California.

About Tokyo Electron

Tokyo Electron Limited, together with its subsidiaries, develops, manufactures, and sells semiconductor and flat panel display (FPD) production equipment in Japan, Europe, North America, Taiwan, China, South Korea, Southeast Asia, and internationally. The company offers coaters/developers, etch systems, surface preparation systems, deposition systems, test systems, wafer bonders/debonders, wafer edge trimming, SiC epitaxial CVD systems, gas cluster ion beam system, and cleaning systems. It also provides plasma etch/ash systems for use in the manufacture of FPDs, as well as inkjet printing systems for manufacturing OLED displays. In addition, the company offers delivery, facility management, and non-life insurance services; sells semiconductor products, board computer products, software, and other electronic components; sells and supports network/storage/middleware related solutions; and develops, manufactures, and sells magnetic annealing systems. Tokyo Electron Limited was incorporated in 1951 and is headquartered in Tokyo, Japan.