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Why Is Lam Research (LRCX) Down 3.5% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Lam Research Corporation (LRCX - Free Report) . Shares have lost about 3.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Tops Q4 Earnings & Revenue Estimates

Lam Research reported fourth-quarter fiscal 2017 non-GAAP earnings of $3.11 per share, surpassing the Zacks Consensus Estimate of $3.02. Earnings increased 11.1% sequentially and 72.8% year over year.
Revenues of $2.34 billion increased 8.9% sequentially and 51.7% year over year. Also, revenues were above the Zacks Consensus Estimate of $2.31 billion.
Revenues by Geography
Region wise, Korea contributed 38%, Japan accounted for 17% and Taiwan and China contributed 16% each of fourth-quarter revenues. The U.S., Europe and Southeast Asia generated 9%, 3% and 1%, respectively.
Total system shipments were $2.54 billion during the reported quarter, up 5% from $2.41 billion reported last quarter.
Non-GAAP gross profit was $1,090.2 million or 46.5% of revenues, reflecting an increase of 40 bps sequentially.
Total adjusted operating expenses were $440.1 million, reflecting an increase of 6.3% sequentially. Operating margin was 27.7%, reflecting an increase of 80 bps from the prior quarter.
Net Income
GAAP net income was $526.4 million compared with $574.7 million in the last quarter and $258.9 million in the year-ago quarter.
Non-GAAP net income was $565.5 million compared with $507.8 million in the last quarter.
Balance Sheet
Exiting fourth-quarter fiscal 2017, cash and cash equivalents, short-term investments, and restricted cash and investment balances were $6.04 billion compared with $5.9 billion at the end of third-quarter fiscal 2017.
Cash flow from operating activities was $729.2 million against $422.7 million in the previous quarter. Capital expenditures amounted to $34.8 million. The company paid $73.7 million in cash dividends to stockholders during the Jun 2017 quarter.
Lam Research provided guidance for first-quarter fiscal 2018.
On a non-GAAP basis, the company expects revenues of approximately $2.45 billion (+/- $100 million). Shipments are projected to be roughly $2.35 billion (+/- $100 million). Gross margin is predicted at around 46.5% (+/-1%), while operating margin is likely to be about 28% (+/-1%).
Earnings per share are projected at $3.25 (+/- 12 cents) on a share count of nearly 183 million. The Zacks Consensus Estimate is pegged at $2.76 per share, which makes guidance better than expected. GAAP earnings per share are projected at $2.98 (+/- 12 cents).
Our Take
Lam Research delivered strong fourth-quarter fiscal 2017 results with both earnings and revenues outperforming our estimates.
The company is doing well and continues to see strong success in the areas of device architecture, process flow and advanced packaging technology inflections.
The company has been improving on the WFE market share significantly since 2013 and expects to continue making gains.
Lam Research continues to see increased adoption rates of 3D NAND technology, FinFETs and multi-patterning. The company has taken cost-reduction activities and density scaling for 3D NAND and new memory technologies.
The company is likely to remain the market leader in dielectric etches as VECTOR Strata and ALTUS deposition, and its Flex and Kiyo etch products have been extremely successful. It anticipates continued strong demand for leading-edge silicon in the enterprise market courtesy of the long-term move to the cloud, storage and networking applications.
Moreover, Lam Research is making good progress with its customer support business and anti-trust agency reviews.
However, concerns persist in the form of volatility and lower growth expectations globally, with slow-but-steady improvement in some developed markets balancing the weakness in certain emerging economies.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

Lam Research Corporation Price and Consensus


VGM Scores

At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second 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.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.


Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.

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