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Why Is Lam Research (LRCX) Up 0.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Lam Research (LRCX - Free Report) . Shares have added about 0.6% 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 Q3 Earnings Lag Estimates

Lam Research reported third-quarter fiscal 2022 non-GAAP earnings of $7.40 per share, which missed the Zacks Consensus Estimate by 1.1%. The figure declined 1.2% year over year.

Revenues improved 5.5% year over year to $4.06 billion.

However, the figure lagged the Zacks Consensus Estimate of $4.25 billion.

The company was negatively impacted by supply-chain disruptions, component shortages and COVID-19 lockdowns.

Nevertheless, it witnessed strong momentum in both systems and customer support businesses, which led to year-over-year top-line growth.

In the reported quarter, the company’s foundry and logic segment performed well, owing to the growing traction among etch and deposition technologies. Strong wins for conductor etch and selective etch applications were positives. Deposition wins at the leading node for critical spacer applications were other positives. The solid momentum in both ALD metals and dielectrics deposition solutions contributed well.

All these drove growth in the company’s system revenues, which were $2.65 billion (65.3% of the total revenues), up 4.1% from the year-ago quarter.

In the Customer Support Business Group, the company’s large contract wins were the major positives. Customer support-related revenues and others for the reported quarter were $1.41 billion (34.7%), up 8.2% year over year.

For 2022, WFE spending is estimated to be in the $100 billion range. Supply challenges are expected to prevail.

Nevertheless, increasing device complexity, along with the rising semiconductor content, remains a tailwind.

Regions in Detail

China, Korea and Taiwan accounted for 31%, 24% and 16% of the company’s total fiscal third-quarter revenues, respectively. Then again, Japan, Southeast Asia, the United States and Europe accounted for 9%, 9%, 8% and 3%, respectively.

Operating Details

The non-GAAP gross margin was 44.7%, which contracted 160 basis points (bps) year over year.

Non-GAAP operating expenses were $620.6 million, reflecting an increase of 9.6% from the prior-year quarter. Further, as a percentage of revenues, the figure expanded 60 bps year over year to 15.3%.

The non-GAAP operating margin was 29.4%, contracting 220 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 27, 2022, cash and cash equivalents, and short-term investments decreased to $4.35 billion from $5.33 billion as of Dec 26, 2021.

Cash flow from operating activities was $757.7 million for the reported quarter, down from $1.4 billion in the previous quarter. Capital expenditure was $145 million in third-quarter fiscal 2022, up from $138.5 million in second-quarter fiscal 2022.

In the reported quarter, Lam Research paid out dividends of $211 million and repurchased shares worth $1.2 billion.

Guidance

For fourth-quarter fiscal 2022, the company expects revenues of $4.2 billion (+/- $300 million).

The non-GAAP gross margin is projected to be 44.5% (+/-1%) and the non-GAAP operating margin is expected to be 29.5% (+/-1%).

Non-GAAP earnings are projected to be $7.25 (+/- 75 cents) per share on a diluted share count of 139 million.

 

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -9.34% due to these changes.

VGM Scores

Currently, Lam Research has an average Growth Score of C, 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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