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Why Is Lam Research (LRCX) Up 9.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Lam Research (LRCX). Shares have added about 9.1% 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 catalysts.

Lam Research Q2 Earnings & Revenues Beat, Decline Y/Y

Lam Research Corporation delivered second-quarter fiscal 2024 non-GAAP earnings of $7.52 per share, which surpassed the Zacks Consensus Estimate by 6.5%. The figure decreased by 29.8% from the year-ago fiscal quarter’s reading.

Revenues of $3.76 billion surpassed the Zacks Consensus Estimate of $3.71 billion. The figure declined by 28.8% year over year. This was primarily attributed to weakness in the systems business due to sluggish memory spending.

Lam Research’s system revenues were $2.29 billion (61.2% of the total revenues), down 35.2% from the year-ago fiscal quarter’s figure. The reported figure surpassed the Zacks Consensus Estimate of $2.27 billion.

In the Customer Support Business Group, revenues for the reported quarter were $1.46 billion (38.8%), down 15.7% from the year-ago fiscal quarter’s number. The figure beat the consensus mark of $1.44 billion.

Although sluggish wafer fabrication equipment (“WFE”) spending remains a concern, improvement in the outlook for the same owing to modest memory recovery is a positive. For 2024, WFE spending is expected to be in the mid-high $80 billion range.

NAND is expected to benefit from technology upgrades, while DRAM is likely to benefit from node conversions and capacity additions in HBM. Foundry/logic to benefit from leading-edge investments.

Stability in domestic spending in China remains a plus.

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

Regions in Detail

China, Korea and Taiwan accounted for 40%, 19% and 13%, respectively, of Lam Research’s total revenues for the fiscal second quarter. Japan, Southeast Asia, the United States and Europe accounted for 14%, 4%, 5% and 5%, respectively.

Operating Details

The non-GAAP gross margin was 47.6%, which expanded 250 basis points (bps) from the year-ago fiscal quarter’s level.

Non-GAAP operating expenses were $662.3 million, down 3.5% from the prior year's fiscal quarter’s reading. As a percentage of revenues, the figure expanded 460 bps from the year-earlier fiscal quarter’s level to 17.6%.

The non-GAAP operating margin was 30%, contracting 210 bps from the year-ago fiscal quarter’s level.

Balance Sheet & Cash Flow

As of Dec 24, 2023, cash and cash equivalents and short-term investments were $5.64 billion compared with $5.16 billion as of Sep 24, 2023.

Cash flow from operating activities was $1.45 billion for the reported quarter, up from $951.2 million in the previous fiscal quarter. Capital expenditure was $115 million in second-quarter fiscal 2024 compared with $77 million in first-quarter fiscal 2024.

In the reported quarter, Lam Research paid out dividends of $264 million and repurchased shares worth $640 million.

Guidance

For third-quarter fiscal 2024, LRCX expects revenues of $3.7 billion (+/- $300 million).

The non-GAAP gross margin is projected at 48% (+/-1%), while the non-GAAP operating margin is expected to be 29.5% (+/-1%).

Non-GAAP earnings are projected to be $7.25 (+/- 75 cents) per share on a diluted share count of 132 million.

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How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted 7.18% due to these changes.

VGM Scores

At this time, Lam Research has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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.

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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