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Shares of Lam Research LRCX moved slightly lower during morning trading hours Monday, just one day before the company is scheduled to release its latest quarterly earnings results. The red-hot run of the semiconductor market has been challenged lately, so investors will want to pay close attention to the report of a major supplier like Lam.
Lam Research provides market-leading equipment and services for the fabrication of integrated circuits. Its products are used primarily in wafer processing—a key step in the manufacturing process that includes the creation of active components like transistors and capacitors. The company also exposure to wafer-level packaging and microelectromechanical systems.
The strength of the semiconductor business has created a rise in demand for Lam Research’s solutions, and investors have rewarded this uptick in business by lifting the stock more than 60% over the past year. But what should we expect from Lam Research’s soon-to-be-reported quarter? Let’s take a closer look.
Latest Outlook and Valuation
Based on our latest Zacks Consensus Estimates, we expect Lam Research to post adjusted earnings of $4.36 per share and total revenue of $2.85 billion. These results would represent year-over-year growth rates of 55.7% and 32.4%, respectively.
Heading into the week, Lam Research was trading with a Forward P/E of 12.3, which is a noticeable discount to its industry’s average of 16.3. Within the past year, the stock has traded as high as 16.2x forward 12-month earnings and as low as 10.0x. Its median earnings multiple over that time is 13.6x. Investors might conclude that LRCX is cheap ahead of its report compared to its industry peers and where it has traded recently.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that Lam Research surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Lam Research is currently holding a Zacks Rank #2 (Buy) and an Earnings ESP of -0.6%. This means that the most recent analyst estimates have been slightly lower than the consensus. In other words, our model is not conclusively calling for a beat.
Another important thing to consider ahead of Lam Research’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The firm is a consistent earnings performer and has met or surpassed consensus estimates in each of the trailing 22 quarters.
But we judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. LRCX has moved higher in three out of the previous four quarters during this window.
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