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Lam Research (LRCX) Up 2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Lam Research (LRCX). Shares have added about 2% 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 catalysts.

Lam Research Q3 Earnings & Revenues Beat Estimates

Lam Research reported third-quarter fiscal 2021 non-GAAP earnings of $7.49 per share, which surpassed the Zacks Consensus Estimate of $6.56. Also, the figure increased 24.2% sequentially.

Adjusted revenues increased 11.3% sequentially and 53.7% year over year to $3.85 billion. The reported revenues also outpaced the Zacks Consensus Estimate by 4.01%.

The year-over-year growth was driven by increased investments across varied sectors such as data centers, smartphones, personal computer gaming consoles, IoT and automotive.

During the quarter, the company witnessed strong demand in key electronic categories, including PCs, storage and networking. Also, Lam Research saw broad-based strength in Foundry-Logic spending, including leading-edge nodes. In addition, it saw an increase in NAND demand related to 5G migration, video and new game consoles. It also witnessed persistent Foundry strength in the quarter.

For 2021, WFE spending is estimated to be more than $75 billion, driven by secular tailwinds such as AI, 5G and IoT. Also, the complexity of manufacturing advanced semiconductor devices continues to increase at a rapid rate, leading to a rise in equipment capillarity across all segments. Moreover, new gaming consoles serves as an incremental driver for semiconductor demand and WFE.

Also, migration to higher layer counts in NAND, strong spending in DRAM and solid momentum in Foundry/Logic are key catalysts.

Top Line in Detail

China, Korea and Taiwan accounted for 32%, 31% and 14% of the company’s total fiscal third-quarter revenues, respectively. On the contrary, Japan, Southeast Asia, the United States and Europe accounted for 7%, 7%, 5% and 4%, respectively.

Operating Details

Non-GAAP gross margin came in at 46.3%, which contracted 30 basis points (bps) sequentially.

Non-GAAP operating expenses were $567 million, reflecting an increase of 0.5% sequentially. However, as a percentage of revenues, the figure contracted 160 bps sequentially to 14.7%.

Adjusted operating margin was 31.6%, up 130 bps sequentially.

Balance Sheet & Cash Flow

At fiscal third quarter-end, cash and cash equivalents as well as short-term investments decreased to $6 billion from $6.3 billion in fiscal second-quarter 2021.

Cash flow from operating activities was $1.2 billion, up from $344.6 million in the fiscal second quarter. Capital expenditures were $89.6 million, down from $92.1 million in the fiscal second quarter.

During the quarter, Lam Research paid dividends of $186.6 million.

Guidance

For fourth-quarter fiscal 2021, Lam Research projects revenues to be $4 billion (+/- $250 million).

Non-GAAP gross margin is projected at 46.5% (+/-1%) and non-GAAP operating margin is expected to be 32% (+/-1%).

Non-GAAP earnings are projected at $7.50 (+/- 50 cents) per share on a share count of 144 million.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 10.19% due to these changes.

VGM Scores

Currently, Lam Research has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lam Research has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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