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Lam Research (LRCX) Up 6.3% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Lam Research (LRCX). Shares have added about 6.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lam Research due for a pullback? 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 Q3 Earnings & Revenues Beat Estimates

Lam Research Corporation delivered third-quarter fiscal 2024 non-GAAP earnings of $7.79 per share, which surpassed the Zacks Consensus Estimate by 7.3%. The figure increased 11.4% from the year-ago quarter.

Revenues of $3.79 billion surpassed the Zacks Consensus Estimate of $3.70 billion. The figure declined 2% year over year. This was primarily attributed to weakness in the systems business due to sluggish memory spending.

Lam Research’s system revenues were $2.39 billion (63% of the total revenues), down 6.2% from the year-ago quarter. The reported figure surpassed the Zacks Consensus Estimate of $2.27 billion.

In the Customer Support Business Group, revenues for the reported quarter were $1.39 billion (37%), down 13.4% from the year-ago quarter. The figure missed the consensus mark of $1.44 billion.

Although sluggish wafer fabrication equipment (“WFE”) spending has been concerning, modest improvement in it due to additional litho shipments into China is a positive.

NAND is expected to benefit from technology upgrades, whereas DRAM is likely to gain from investments in HBM and solidifying prospects in domestic China. Foundry/logic is anticipated to benefit from leading-edge investments.

Stability in domestic spending in China has been a plus.

Lam Research’s proper execution and expansion, as well as diversifying global footprints, have been positives. The company’s technological advancements, especially with AI, are noteworthy. Its strength in 3D DRAM and advanced packaging is another tailwind.

Regions in Detail

China, Korea and Taiwan accounted for 42%, 24% and 9%, respectively, of Lam Research’s total revenues for the fiscal third quarter. Japan, Southeast Asia, the United States and Europe accounted for 9%, 5%, 6% and 5%, respectively.

Operating Details

The non-GAAP gross margin was 48.7%, which expanded 470 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses were $697.7 million, up 14.8% from the prior-year quarter. As a percentage of revenues, the figure expanded 270 bps from the year-earlier quarter to 18.4%.

The non-GAAP operating margin was 30.3%, expanding 200 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2024, cash and cash equivalents were $5.67 billion compared with $5.62 billion as of Dec 24, 2023.

Cash flow from operating activities was $1.38 billion for the reported quarter, down from $1.45 billion in the previous fiscal quarter.

In the reported quarter, Lam Research paid out dividends of $263 million and repurchased shares worth $981 million.

Guidance

For fourth-quarter fiscal 2024, LRCX expects revenues of $3.8 billion (+/- $300 million).

The non-GAAP gross margin is projected at 47.5% (+/-1%), whereas the non-GAAP operating margin is expected to be 29.5% (+/-1%).

Non-GAAP earnings are projected to be $7.50 (+/- 75 cents) per share on a diluted share count of 131 million.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Lam Research has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Lam Research has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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