It has been about a month since the last earnings report for Lam Research Corporation (LRCX - Free Report) . Shares have lost about 4.8% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is LRCX 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 catalysts.
Lam Research reported third-quarter fiscal 2018 non-GAAP earnings of $4.79 per share, which came ahead of the Zacks Consensus Estimate of $4.36. The figure increased 10.4% sequentially and 71.1% on a year-over-year basis.
Adjusted revenues increased 12% sequentially and 34.4% year over year to $2.89 billion beating the Zacks Consensus Estimate of $2.85 billion.
The year-over-year growth was attributed to robust performance of both etch and deposition technologies which resulted in expansion of serviceable addressable market of the company.
Total system shipments were $3.13 billion during the third quarter, which was up 19% sequentially and 29.9% on a year-over-year basis. However, shipments were below management’s guidance of $3.17 billion.
Top Line in Detail
In the quarter, Korea, China, Japan and Taiwan accounted for 36%, 17%, 14% and 12% of the company’s total revenues. Both the United States and Southeast Asia contributed 8%, while Europe contributed 5%.
The company experienced rising demand for DRAM application and NAND Flash that led to the increasing adoption of dielectric etch technology. Moreover, Lam Research benefited from its transition to new data enabled economy in which DRAM and NAND continues to gain from density growth.
Also, the company’s deposition portfolio continued to perform well and witnessed increased volume of shipments in the quarter.
Lam Research witnessed a record level of shipments since it crossed over $3 billion mark for the first time.
Shipment increase was driven mostly by improved memory shipments which accounted for 84% of the total shipments. Non-volatile memory shipments contributed to 57% and DRAM shipments contributed 27%.
The Foundry segment of the company contributed to 10%, Logic and other segment contributed 6% to the total shipments.
Non-GAAP gross profit came in $1.35 billion or 46.8% of revenues, which expanded 70 basis points (bps) on a year-over-year basis but contracted 80 bps sequentially.
Non-GAAP operating expenses were $486 million, reflecting an increase of 17.4% year over year and 8.2% from the previous quarter. This was due to increased research and development and selling, general and administrative expenditure.
Adjusted operating margin was 30%, expanded 310 bps but contracted 20 bps sequentially.
Balance Sheet & Cash Flow
As of Mar 25, 2018, cash and cash equivalents, short-term investments and restricted cash and investment balances came in $6.7 billion compared with $6 billion as of Dec 24, 2017. This increase was attributed to cash flow from operating activities was $1.05 billion, up from $28.7 million in the prior quarter.
Also, capital expenditures amounted to $49 million which were down from $84.7 million in the last quarter. The company also repaid debt of $29 million.
Lam Research paid $80 million in cash dividends to stock holders and covered 25% of the current $4 billion share buyback authorization by spending $1 billion to repurchase shares.
For fourth-quarter fiscal 2018, Lam Research’s revenues are projected at $3.1 billion (+/- $150 million). Management believes that memory segment will continue to perform well and expects consumer spending for its NAND products to increase further. Foundry and Logic segments are also expected to improve.
Shipments are projected to be around $3 billion (+/- $150 million). Gross margin is predicted at around 47.5% (+/-1%), while operating margin is likely to be about 31% (+/-1%).
Based on a share count of 178 million, management expects non-GAAP earnings of $5 (+/- 20 cents) per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 8.9% due to these changes.
Lam Research Corporation Price and Consensus
At this time, LRCX has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise LRCX has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.