Lam Research (LRCX) Q2 Earnings: Will it Beat Estimates?

Lam Research CorporationLRCX , a leading provider of semiconductor manufacturing systems, is expected to beat expectations when it reports second-quarter fiscal 2016 results on Jan 25.

Over the last one year, the stock has outperformed the Zacks Semiconductor Equipment - Wafer Fabrication industry. It has gained 65.22% compared to the industry's gain of 60.56%.

Why a Likely Positive Surprise?

Our proven model shows that Lam Research is likely to beat estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Lam Research has the right combination of two key components.

Zacks ESP: Lam Research currently has an Earnings ESP of +0.46%. This is because the Most Accurate estimate stands at $2.20, while the Zacks Consensus Estimate is pegged at $2.19. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Lam Research currently carries a Zacks Rank #2, which when combined with an ESP of +0.46% make us reasonably confident of a positive surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Lam Research Corp. Price and Consensus

Lam Research Corp. Price, Consensus and EPS Surprise | Lam Research Corp. Quote

What is Driving the Better-Than-Expected Results?

Lam Research has been improving on WFE market share significantly since 2013 and expects to continue to make gains.

The company continues to see increased adoption rates of 3D NAND technology, FinFETs and multi-patterning. The company has initiated cost reduction and density scaling for 3D NAND and new memory technologies.

Lam Research is likely to remain the market leader in dielectric etches as VECTOR Strata and ALTUS deposition and its Flex and Kiyo etch products are extremely successful thus far. It anticipates strong demand for leading-edge silicon in the enterprise market to continue, driven by the long-term move to the cloud, storage and networking applications.

Moreover, the company is making good progress with its customer support business and anti-trust agency reviews.

Last quarter, Lam Research terminated its proposed acquisition of California-based KLA-Tencor, following antitrust objections from the Justice Department. The department's antitrust division cited serious concerns over the deal as the combined company might restrict competition. Nonetheless, the fact that the company will not have to shell out a merger termination fee is a positive.

However, concerns persist in the form of volatility and lower growth expectations globally, with a slow-but-steady improvement in some developed markets balancing the weakness in certain emerging economies.

Per its second quarter guidance, on a non-GAAP basis, the company expects revenues of approximately $1.84 billion (+/- $75 million). Shipments are projected to be roughly $1.85 billion (+/- $75 million). Gross margin is predicted to be around 46.0% (+/-1%), while operating margin is likely to be about 25.0% (+/-1%).

Stocks to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Seagate Technology plc STX , with an Earnings ESP of +1.87% and Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Corning Incorporated GLW , with an Earnings ESP of +2.27% and a Zacks Rank #2.

Microsoft Corporation MSFT , with an Earnings ESP of +1.28% and Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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