Why Is Lam Research (LRCX) Down 9.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Lam Research (LRCX). Shares have lost about 9.8% 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 the most recent earnings report in order to get a better handle on the important drivers.
Lam Research Q4 Earnings & Revenues Beat Estimates
Lam Research Corporation reported fourth-quarter fiscal 2020 non-GAAP earnings of $4.78 per share, which surpassed the Zacks Consensus Estimate of $4.20. Also, the figure increased 20% sequentially.
Adjusted revenues increased 12% sequentially and 18.2% year over year to $2.79 billion. The reported revenues outpaced the Zacks Consensus Estimate by 2.4%.
During the quarter, the company saw an increase in NAND demand related to 5G migration, video, and new game consoles. It witnessed persistent Foundry strength in the quarter. Also, there was an accelerated demand for remote equipment support.
WFE spending for 2020 is estimated in the mid- to high-$50 billion range.
Top Line in Detail
China, Korea and Taiwan accounted for 34%, 32% and 11% of the company’s total fiscal fourth-quarter revenues, respectively. On the contrary, Japan, the United States, Southeast Asia and Europe accounted for 8%, 7%, 5% and 3%, respectively.
Non-GAAP gross margin came in at 46.1%, which contracted 20 basis points (bps) sequentially.
Non-GAAP operating expenses were $493.1 million, reflecting an increase of 1.4% sequentially. However, as a percentage of revenues, the figure contracted 170 bps sequentially to 17.7%.
Adjusted operating margin was 28.5%, up 160 bps sequentially.
Balance Sheet & Cash Flow
At fiscal fourth quarter-end, cash and cash equivalents, as well as short-term investments increased to $6.7 billion from $5.4 billion in the fiscal third quarter.
Cash flow from operating activities was $813 million, up from $541.4 million in the fiscal third quarter. Capital expenditures were $50.6 million, down from $51.4 million in the fiscal third quarter.
During the quarter, Lam Research paid dividends of $167.7 million.
For first-quarter fiscal 2021, Lam Research projects revenues to be $3.1 billion (+/- $200 million).
Gross margin is projected at 46.5% (+/-1%) and operating margin is expected to be 29.5% (+/-1%).
Non-GAAP earnings are projected at $5.15 (+/- 40 cents) per share on a share count of 147 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 22.84% due to these changes.
Currently, Lam Research has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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