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Lam Research (LRCX) Up 1.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Lam Research (LRCX). Shares have added about 1.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lam Research due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Lam Research Q2 Earnings Beat Estimates

Lam Research reported second-quarter fiscal 2022 non-GAAP earnings of $8.53 per share, which surpassed the Zacks Consensus Estimate by 0.8%. The figure increased 41.5% year over year and 2% sequentially.

Revenues improved 22.3% year over year to $4.23 billion. However, the figure decreased 1.8% sequentially. It also lagged the Zacks Consensus Estimate of $4.40 billion.

The year-over-year revenue growth was driven by well-performing systems and the customer support business.

Yet, impacts of the OMICRON variant, labor shortages, freight and logistics cost escalation as well as supply chain constraints remained concerns.

Quarter Details

In the reported quarter, the company witnessed strong momentum across 3D NAND manufacturers for critical applications. Its NAND, DRAM, foundry and logic segments performed well owing to the growing traction among etch and deposition technologies. Further, strong wins for conductor etch and selective etch applications were positives. All these factors aided the company’s system revenues, which were $2.74 billion (accounting for 65% of total revenues), up 18.8% from the year-ago quarter. Under systems revenues, non-volatile memory, foundry, DRAM, and logic/other accounted for 35%, 31%, 23%, and 11%, respectively.

Growing installed base of tools, customers operating at high utilization levels and Lam Research’s value-added advanced service solutions drove top-line growth for the company’s Customer Support Business Group. Further, robust Reliant business contributed well. Customer support-related revenues and others for the reported quarter were $1.49 billion (35% of total revenues), up 29.4% year over year.

For 2021, WFE spending is estimated in the mid-$80 billion range, driven by growth of end-market demand, rising device complexity, strong semiconductor industry profitability, and regional government support and incentives. Also, the growing demand for advanced processors and memory devices to meet the increasing adoption of gaming devices remained a tailwind.

Regions in Detail

China, Korea, and Taiwan accounted for 26%, 25%, and 18% of the company’s total fiscal second-quarter revenues, respectively. Then again, Japan, Southeast Asia, the United States, and Europe accounted for 12%, 9%, 6%, and 4%, respectively.

Operating Results

Non-GAAP gross margin was 46.8%, which expanded 20 basis points (bps) year over year.

Non-GAAP operating expenses were $627.4 million, reflecting an increase of 11.4% from the prior-year quarter. As a percentage of revenues, the figure contracted 150 bps year over year to 14.8%.

Non-GAAP operating margin was 32%, expanding 170 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 26, 2021, cash and cash equivalents as well as short-term investments increased to $5.33 billion from $4.61 billion on Sep 26, 2021.

Cash flow from operating activities was $1.4 billion for the reported quarter, up from $457.5 million in the previous quarter. Capital expenditure was $138.5 million in fiscal second-quarter 2022, up from $136.4 million in fiscal first-quarter 2022.

Total free cash flow was $1.30 billion for the reported quarter, up from $321.1 million in the prior quarter.

In the reported quarter, Lam Research paid out dividends of $211.2 million and repurchased shares worth $415 million.

Guidance

For third-quarter fiscal 2022, the company expects revenues of $4.25 billion (+/- $300 million).

Non-GAAP gross margin is projected at 45% (+/- 1%) and non-GAAP operating margin is expected to be 29.5% (+/- 1%).

Non-GAAP earnings are projected at $7.45 (+/- 75 cents) per share on a share count of 141 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -13.09% due to these changes.

VGM Scores

At this time, Lam Research has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lam Research has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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