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Why Is Lam Research (LRCX) Down 8.1% 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 lost about 8.1% in that time frame, outperforming 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 catalysts.

Lam Research Q2 Earnings & Revenues Beat Estimates

Lam Research Corporation reported second-quarter fiscal 2020 non-GAAP earnings of $4.01 per share, which beat the Zacks Consensus Estimate of $3.81. Also, the figure increased 26.1% sequentially.

Moreover, adjusted revenues increased 19.3% sequentially and 2.4% year over year to $2.58 billion. The reported revenues also surpassed the Zacks Consensus Estimate by 3.2%.

Management remains optimistic about the improving wafer fabrication equipment environment. The company witnessed better-than-expected WFE spending in 2019, driven by strength in foundry and logic.

For 2020, management expects WFE spend in the mid-to-high $50-billion range, driven by sustained strong spending in foundry and logic, and an improved spending in memory. Overall, management expects spending in memory and foundry/logic segments to increase in 2020 on a year-over-year basis.

Top Line in Detail

China, Taiwan and Korea accounted for 29%, 26% and 18% of the company’s total fiscal second-quarter revenues, respectively. On the contrary, the United States, Japan, Southeast Asia and Europe accounted for 9%, 8%, 7% and 3%, respectively.

Operating Details

Non-GAAP gross margin came in at 45.7%, which expanded 30 basis points (bps) sequentially.

Non-GAAP operating expenses were $480.8 million, reflecting an increase of 11.6% sequentially. As a percentage of sales, research & development expenses marked an increase, while selling, general & administrative costs decreased.

Adjusted operating margin was 27.1%, up 160 bps sequentially. The increase was primarily due to lower-than-expected expenses.

Balance Sheet & Cash Flow

At the end of the fiscal second quarter, cash and cash equivalents, and short-term investments decreased to $4.9 billion from $5.8 billion in the fiscal first quarter.

Cash flow from operating activities was $307.9 million, down from $464 million in the fiscal first quarter. Capital expenditures were $62.1 million, up from $39.3 million in the fiscal first quarter.

During the quarter, Lam Research paid dividends of $166.7 million.

Guidance

For third-quarter fiscal 2020, Lam Research projects revenues to be $2.8 billion (+/- $200 million). 

Gross margin is projected at 46.5% (+/-1%) and operating margin is expected to be 28% (+/-1%).

Non-GAAP earnings are projected at $4.55 (+/- 40 cents) per share on a share count of nearly 149 million. 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 13.13% due to these changes.

VGM Scores

At this time, Lam Research has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 B. 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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