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

A month has passed since Lam Research’s (LRCX) last earnings report. Shares have risen about 6.3% in that time, outperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or is Lam Research headed for a recession? 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 key drivers.

Lam Research’s third-quarter earnings and revenues topped estimates

Lam Research Corporation posted third-quarter fiscal 2024 non-GAAP earnings of $7.79 per share, topping the Zacks Consensus Estimate by 7.3%. This number increased by 11.4% compared to the previous year’s quarter.

Revenues of $3.79 billion surpassed the Zacks Consensus Estimate of $3.70 billion. This number decreased by 2% year-on-year. This was mainly attributed to weakness in the systems industry caused by slow memory consumption.

Lam Research’s systems revenue was $2.39 billion (63% of total revenue), down 6.2% from the same quarter last year. The reported number surpassed the Zacks Consensus Estimate of $2.27 billion.

In the Customer Support Business Group, revenue for the reported quarter was $1.39 billion (37%), a decline of 13.4% compared to the same quarter last year. The figure fell short of the consensus estimate of $1.44 billion.

While slow wafer fabrication equipment (“WFE”) spending is a concern, the slight improvement in WFE spending due to additional lithium supplies to China is a positive development.

NAND is expected to benefit from technology improvements, while DRAM is likely to benefit from investments in HBM and a strengthening outlook in domestic China. Foundry/Logic is expected to benefit from this cutting-edge investment.

The stability of domestic spending in China is an advantage.

The proper implementation and development of Lam Research, as well as the diversification of its global reach, have yielded positive results. The company’s technological progress is noteworthy, especially in the field of artificial intelligence. Its strength in 3D DRAM and advanced packaging is another tailwind.

Regions in detail

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

Operational details

Non-GAAP gross margin was 48.7%, an increase of 470 basis points (bps) compared to the prior-year quarter.

Non-GAAP operating expenses were $697.7 million, an increase of 14.8% compared to the prior-year quarter. As a percentage of revenue, the number increased 270 basis points from the year-ago quarter to 18.4%.

Non-GAAP operating margin was 30.3%, an increase of 200 basis points from the prior-year quarter.

The story continues

Balance sheet and cash flow

As of March 31, 2024, cash and cash equivalents were $5.67 billion compared to $5.62 billion as of December 24, 2023.

Cash flow from operations was $1.38 billion in the reported quarter, compared to $1.45 billion in the previous fiscal quarter.

During the reported quarter, Lam Research paid a dividend of $263 million and repurchased shares worth $981 million.

Conductivity

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

Non-GAAP gross margin is forecast at 47.5% (+/-1%) and non-GAAP operating margin at 29.5% (+/-1%).

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

How have estimates changed since then?

It turns out that estimate revisions have been trending upwards over the past month.

VGM results

At this point, Lam Research has a strong Growth Score of A, although it lags well behind its Momentum Score of C. Plotting a somewhat similar path, the stock is rated D on the Value side, which puts it in the bottom 40% for this investment strategy.

Overall, the stock has a composite VGM score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, Lam Research carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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