Lam Research Corp.

-21.53 (-4.11%)
7:59:04 PM EDT: $503.50 +1.44 (+0.29%)
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Why You Must Know Lam Research



If you aren't familiar with Lam Research, it's time to be introduced to this magnificent company. If you are familiar with the firm, let me show you what's gong on under the hood that is pretty remarkable. In fact, out of all technology firms above $1 billion in market cap, LRCX shows the fourth strongest fundamentals, behind the likes of Apple (AAPL) and Skyworks Solutions (SWKS). A snippet of the scan for the strongest companies in technology is included below.

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LRCX is a chip-making equipment supplier. That should immediately ring alarm bells because competition from the mammoth Intel (INTC) and Taiwan Semiconductor (TSM). Even more alarming, we now know that both of those companies are reducing capital expenditures (CapEx) by over $1 billion each because of weakness they see in their businesses. But, LRCX is increasing CapEx. The company also blew out last quarter's earnings and raised guidance for the next quarter (actually the maintained their bullish stance). I do note that perhaps Applied Materials (AMAT) is the best head-to-head peer.

In the last earnings call the CEO said, "[the company's] differentiated products and services are directly addressing the market-driving technology inflection." The Motley Fool has called Lam Research's efforts "bleeding edge" and they are referring in part to LRCX's 3D transistors and various other chip technologies. Make no mistake, while the two giants in the industry are cutting guidance, LRCX is raising it.

LRCX is realizing growing revenue, operating margins, net income, free cash flow and R&D. In fact, earnings have grown over 50% year-over-year and the company has broken new all-time highs in revenue (TTM) for ten consecutive quarters .

Technicals   |   Support: 75.2   |   Resistance: 83.78   

Golden Cross Alert:
The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

LRCX has a two bull (low rating) technical rating because it's trading below the 10-day (short-term), 50-day (medium-term) and 200-day (long-term) moving averages. The fact that the 10-day MA is above the 50-day MA ("swing golden cross") does bring the technical rating up from the lowest rung.

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-07-29 $1.47 $1,371.4 M $1,366.4 M $1,393.3 M Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 5,027 4,345 3,355

Operating Margin (QTR) 1.208 1.19 1.01 RISING

Net Income (TTM US$ Millions) 758 485 46

Levered Free Cash Flow (TTM US$ Millions) 492 449 143 RISING

Research and Development (US$ Millions) 218 186 174 RISING

Research and Development Expense/Revenue 0.156 0.152 0.206 RISING

Stock Returns and Chart

LRCX is up +9.5% over the last three months and up +0.5% over the last six months. The stock price is up +13.6% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
Click here to interact with this stock chart

Now let's examine the visualizations of the critical financial measures.

Revenue (TTM US$ Millions) 5,0274,3453,355

Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters (in this case 16 consecutive quarters).

Revenue over the trailing twelve months (TTM) is up nearly 16% and nearly 50% over two-years. Again, this is in the face of the two mega caps which are warning of slowing growth.

What do all these numbers mean?
LRCX's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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Net Income (TTM US$ Millions) 75848546

The revenue growth for LRCX isn't just a mirage where the company paying $1.10 or $1 in revenue (or whatever). The firm actually generates $1.20 in revenue per dollar of operating expense, which is up from $1.01 two-years ago. The result is simply called "earnings."

Net Income (after tax profit) over the trailing twelve months (TTM) for LRCX is up 56% year-over-year and just broke an all-time high of $758 million. Further, net income (TTM) is trending higher meaning that annual earnings have increased for at least five consecutive quarters (in this case it's eleven consecutive quarters).

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the rising bars from a year ago (four quarters ago).

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Research and Development (US$ Millions) 218186174RISING

Research and Development (US$ Millions) in the most recent quarter for LRCX was $218 million, which is up 17% year-over-year and up more than 25% in the last two-years. This is critical because it alleviates the concern that earnings today are coming at the expense of earnings and investment for the future. In fact, it's quite unusual to find a firm that has increasing revenue, increasing earnings, in creasing operating margins and increasing expenses in an industry where peers are cutting CapEx and cutting guidance. This is a special company.

R&D per dollar of revenue for the latest quarter is $0.156. Last year this measure was $0.152 (it's rising).

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars and R&D per dollar of revenue in the gold line.

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Lam Research is in the top 1% of all technology firms in terms of fundamental strength. As peers look to cut CapEx and guide downward, the firm remains bold in its bullish outlook and is crushing it on every level of fundamental measurement.

Free cash flow and operating margins are growing along with revenue and earnings. R&D is exploding and the firm is very much proving its mettle as a bleeding edge technology firm that is simply beating everyone else in its peer group. As the entire sector is tending toward a dropping stock price, don't throw the baby out with the bath water. Lam Research has proven to be exceptional to date.