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

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It has been about a month since the last earnings report for Lam Research (LRCX - Free Report) . Shares have lost about 0.6% 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 Q1 Earnings & Revenues Beat Estimates

Lam Research Corporation reported first-quarter fiscal 2020 non-GAAP earnings of $3.18 per share, which beat the Zacks Consensus Estimate of $3.00. However, the figure decreased 12.2% sequentially.

Moreover, adjusted revenues decreased 8.3% sequentially and 7.1% year over year to $2.17 billion. However, the reported revenues surpassed the Zacks Consensus Estimate by 0.7%.

Management expects to see improvements in the memory market, primarily led by NAND. The company expects NAND demand dynamics to further improve and oversupply conditions to abate in the near term. Foundry and logic spending should remain strong in the future. Also, both the server and smart home markets are expected to perform well in the near term.

Top Line in Detail

China, Korea, Taiwan and Japan accounted for 27%, 21%, 18% and 13%of the company’s total fiscal first-quarter revenues, respectively. On the contrary, Southeast Asia, the United States and Europe accounted for 10%, 8% and 3%, respectively.

Operating Details

Non-GAAP gross margin came in at 45.4%, which contracted 50 basis points (bps) sequentially.

Non-GAAP operating expenses were $431 million, reflecting a decrease of 4.4% sequentially. As a percentage of sales, research & development expenses marked an increase, while selling, general & administrative costs decreased.

Adjusted operating margin was 25.5%, down 140 bps sequentially. The decrease was primarily due to higher-than-expected expenses.

Balance Sheet & Cash Flow

At the end of the fiscal first quarter, cash and cash equivalents, and short-term investments increased to $5.8 billion from $5.4 billion in the fiscal fourth quarter.

Cash flow from operating activities was $464 million, down from $880.5 million in the fiscal fourth quarter. Capital expenditures were $39.3 million, down from $65.9 million in the fiscal fourth quarter.

During the quarter, Lam Research paid dividends of $158.9 million.

Guidance

For second-quarter fiscal 2020, Lam Research projects revenues to be $2.5 billion (+/- $150 million). 

Gross margin is projected at around 45% (+/-1%) and operating margin is expected to be 27% (+/-1%).

Non-GAAP earnings are projected at $3.80 (+/- 20 cents) per share on a share count of nearly 150 million. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 20.84% due to these changes.

VGM Scores

Currently, Lam Research has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lam Research has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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