I last wrote about Lam Research (LRCX - Free Report) as Bull of the Day in late April after they delivered the earnings "trifecta" of top and bottom line beats and raised guidance.
I had some fun then talking about the "lam-basting" the bears took who were shorting shares under $130.
But I've had a lot more fun simply owning shares of LRCX.
Because since then, three things keep going up: the EPS estimates, the analyst price targets, and the stock.
Let's review the markets served by this premier semiconductor equipment maker who specializes in the industry known as WFE (wafer fabrication equipment). To start, I can do no better than share this excellent and simple self-description on the company's Overview website page...
To produce the tiny, complex chips used in products such as cell phones, computing devices, and entertainment gadgets, semiconductor manufacturers require highly sophisticated processes and equipment. Lam’s products play a key role in this, allowing chipmakers to build device features that are more than 1,000 times smaller than a grain of sand. In fact, nearly every leading-edge integrated circuit made today has been processed with Lam Research equipment.
Lam’s market-leading products are used in several steps that are repeated multiple times throughout the chip-making process, including thin film deposition, plasma etch, photoresist strip, and wafer cleaning.
Estimates Move Higher
After the company's third-quarter report on April 18 (for fiscal year 2017 ending in June), analysts raised the current year's EPS consensus 6.6% from $9.22 to $9.83.
But the full-year 2018 profit projection rose a whopping 21% to $10.28 from $8.49.
And in the last 30 days, as Semiconductor analysts study global chip demand and rework their sales and earnings models, the estimates keep climbing for Lam.
The 2017 view only went up a nickel to $9.88, but next year moves another 4.7% higher to $10.76.
Targets Move Higher
In my April 27 article, I highlighted some of the steadfast bullish analysts from Stifel Nicolaus and Pacific Crest. Here's what I wrote then...
Our first steadfast bull, Stifel analyst Patrick Ho, had a chance to reflect on the raised guidance and boosted EPS estimates this morning. He reiterated his Buy rating on shares of Lam Research and raised his price target to $170. The new PT is based on 15x FY18 (June) pro-forma EPS of $10.35, plus ~$15 in net cash per share.
Ho said "Lam was tracking generally on plan (actually, better than expected) for 1H17, driven by 3D NAND and a mix of DRAM and leading edge foundry."
NAND is a type of logic switch for flash memory.
Our second steadfast bull, Pacific Crest analyst Weston Twigg, raised his price target on Lam Research to $180 from $163 while maintaining an Overweight rating.
Twigg said "Lam appears positioned to meaningfully outgrow the overall equipment market in 2017 as 3D NAND, where Lam is very well positioned, is likely to become the largest segment. Lam noted that it now has a stronger demand view for 2017 than in last quarter, with the increased conviction coming two-thirds from NAND and one-third from logic."
(end of April article excerpt)
But on May 15, somebody raised the bar even higher. Citi analyst Atif Malik boosted his price target for Lam to $200 from $161 as he projected higher 3D NAND investment expectations based on his research that 2018 wafer fab equipment spending would rise to $43 billion, 7.5% higher than his original $40 billion forecast.
Shares Move Higher
Since the April 18 earnings report, Lam shares are up 27% (trading new all-time highs above $162 as I type on Tuesday afternoon). This is nearly half of the gains achieved in a blistering 6 month period for lots of chip and equipment companies, with the Philadelphia Semiconductor Index (SOX) up nearly 29%.
The comparative performance chart below tells the story, with 3 of Lam's WFE peers, Applied Materials (AMAT - Free Report) , KLA-Tencor (KLAC), and MKS Instruments (MKSI - Free Report) ...
It would be natural to think that all these chip stocks have run too far and that a big correction must be looming. But the global demand drivers for specialty chip makers like Broadcom (AVGO - Free Report) and NVIDIA (NVDA - Free Report) -- who provide the silicon brains in industries across automobiles, datacenters, telecom, and "smart" consumer electronics and appliances -- are strong and don't appear to be slowing down this year.
This keeps the WFE "arms dealers" and their fab-ulous equipment equally in demand.
Disclosure: I own LRCX shares for the Zacks TAZR Trader.
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