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Why Is Lam Research (LRCX) Down 9.6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Lam Research (LRCX). Shares have lost about 9.6% in that time frame, underperforming the S&P 500.

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

Lam Research Q3 Earnings & Revenues Beat Estimates

Lam Research Corporation reported third-quarter fiscal2019 non-GAAP earnings of $3.70 per share, which beat the Zacks Consensus Estimate by 32 cents. However, the figure decreased 4.4% sequentially and 22.8% year over year.

Moreover, adjusted revenues decreased 3.3% sequentially and 15.7% year over year to $2.44 billion. However, the reported revenues surpassed the Zacks Consensus Estimate by 1.51%.

Management remains positive about both etch and deposition technologies, which in turn will continue to expand its serviceable addressable market.

Top Line in Detail

In the quarter, Korea and Taiwan accounted for 25% and 23% of the company’s total revenues, respectively, while Japan and China contributed 17% each. On the contrary, United States, Southeast Asia and Europe accounted for 9%, 5% and 4%, respectively.

Operating Details

Non-GAAP gross margin came in at 45.1%, which contracted 120 basis points (bps) sequentially.

Non-GAAP operating expenses were $488.4 million, reflecting an increase of 11% sequentially. As a percentage of sales, both research & development and selling, general & administrative expenses marked an increase.

Adjusted operating margin was 25.1%, down 370 bps sequentially. The decrease was primarily due to higher expenses.

Balance Sheet & Cash Flow

At the end of the fiscal third quarter, cash and cash equivalents and short-term investments increased to $6.1 billion from $3.6 billion in the fiscal second quarter.

Cash flow from operating activities was $932.8million, up from $642 billion in the fiscal second quarter. Capital expenditures were $75.5 million, down from $106 million in the fiscal second quarter.

During the quarter, Lam Research paid dividends of $171.2 million.

Guidance

For fourth-quarter fiscal 2019, Lam Research projects revenues to be $2.35 billion (+/- $150 million). 

Gross margin is projected at around 45.5% (+/-1%) and operating margin is expected to be 26% (+/-1%).

Non-GAAP earnings are projected at $3.40 (+/- 20 cents) per share on a share count of nearly 155 million. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Lam Research has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. 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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