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Is Lam Research (LRCX) Poised to Beat?

Zacks Equity Research

Lam Research (LRCX) is set to report first quarter 2014 results on Oct 23. Last quarter, it posted an 11.1% positive surprise. Let’s see how things are shaping up for this announcement.

Growth Factors This Past Quarter

Lam Research’s fourth quarter earnings exceeded the Zacks Consensus Estimate by 8 cents or 11%.  Revenues of $986.2 million were up both sequentially as well as on a year over year basis, driven by continued strength in the foundry segment at the 28-nanometer node.

Apart from foundries, Lam’s memory business also experienced strong growth in the quarter. Higher revenues coupled with favorable customer mix were the main reasons for the margin expansion.

For the first quarter of 2014, the company provided a strong guidance with its revenues expected to be in the range of $970.0 million - $1.30 billion while earnings are projected in the range of 61 cents to 75 cents.

Earnings Whispers?

Our proven model does not conclusively show that Lam Research is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen.   That is not the case here as you will see below.

Negative Zacks ESP:  That is because the Most Accurate estimate stands at 68 cents while the Zacks Consensus Estimate is higher at 71 cents. That is a difference of -4.23%.

Zacks Rank #3  (Hold): Lam Research’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks #3 Rank when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

  • SanDisk Corp. (SNDK), Earnings ESP of +2.84% and Zacks Rank #1 (Strong Buy)
  • ASML Holding NV (ASML), Earnings ESP of +4.17% and Zacks Rank #3 (Hold)
  • Jarden Corp (JAH), with Earnings ESP of +2.00% and Zacks Rank #1 (Strong Buy)

Read the Full Research Report on LRCX
Read the Full Research Report on SNDK
Read the Full Research Report on JAH
Read the Full Research Report on A^SML

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