Lam Research: Headwinds Remain Moderate – Speculative Entry – Seek Alpha | Jewelry Dukan

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Lam Research Corporation (NASDAQ:LRCX). In addition, it is important to note that management has already met Mr. Market’s expectations of the ban during his management previous profit call. This improves the odds of success on October 19 given the lower estimates and reduced anticipation. We will see.

As a result, the recent slump in demand in the PC and mid-tier smartphone markets may have led to lower capital spending going forward. However, we expect these headwinds to be temporary and sufficiently alleviated once macroeconomic conditions improve by mid-2023.

LRCX’s investment in Foundry Logic is paying off

LRCX's investment in Foundry Logic is paying off

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Additionally, LRCX fundamental demand remains robust given its strategic investment in the leading foundry/logic segment. LRCX saw growth in its Foundry and Logic/Others segments, which accounted for 29.8% and $2.82 billion of its revenue in fiscal 2019, growing to an impressive 35.7% and $5.93 billion through fiscal 2022. USD increased. Furthermore, its DRAM segment remains intact going forward as it is unlikely to be affected by the US government ban. So investors shouldn’t worry too much.

LRCX management continues to impress

LCRX Sales, Net Income, Net Income Margin and Gross Margin

S&P Capital IQ

In fiscal 2022, LRCX reported revenue of $17.23 billion and gross margins of 45.7%, representing year-over-year growth of 17.7% or minimal moderation of -0.8 percentage points year-over-year. In contrast, the company continues to report improved profitability with net income of $4.61 billion and a net income margin of 26.7% for the most recent fiscal year. This represents a notable increase of 17.9% or yoy despite rising inflation.

By now, given the impressive 3-year Revenue CAGR of 21.32% and Net Income CAGR of 28.16%, it is most evident that the COVID-19 pandemic has indeed been kind to LRCX compared to pre-2000 levels Pandemic of 17.96% and 33.84%. respectively.

LCRX operating costs

S&P Capital IQ

LRCX has also proven extremely competent in terms of its expense management, with operating expenses of $2.49 billion in FY2022, a minimal increase of 7.3% year-over-year. Therefore, the company’s improved cost ratio contributes to its growing revenue, which is 14.5% of its revenue and 31.6% of its gross profit through the most recent fiscal year, a sustained deceleration of -5.1 and -11.8 percentage points, respectively compared to the level of the 2019 financial year. This will trigger LRCX’s improved profitability as the company continues to invest strategically in its future R&D efforts.

LCRX Long-Term Debt, Interest Expense, Net PPE and Capex

S&P Capital IQ

LRCX has reported increased long-term debt of $4.96 billion and interest expense of $0.18 billion over the past three years, indicating increases of 31.5% and 50%, respectively, from fiscal 2019 levels. However, investors needn’t worry as only $0.5 billion will mature by 2025 and $3.75 billion will mature after 2027. This frees up the company’s liquidity for the next two years.

Meanwhile, LRCX has been steadily expanding its capacity with CAPEX of US$0.55 billion and Net PPE Assets of US$1.87 billion in FY2022, an increase of 57.1% and 26.3%, respectively % YoY. These would prove to be revenue and profit boosts, particularly from the Chips Act, which brought in $52.7 billion for the semiconductor industry, with an additional 25% tax credit for U.S. chipmakers.

LCRX Cash/Equivalents, FCF and FCF Margins

S&P Capital IQ

Therefore, it is not surprising that LRCX reported lower free cash flow (FCF) generation of $2.55 billion and FCF margin of 14.8% in fiscal 2022, down from -21.2% and -21.2% respectively -7.3 percentage points year-on-year. Still, its cash and cash equivalents of $3.77 billion remain relatively resilient amid deteriorating macroeconomic developments.

Projected LCRX Sales and Net Profit

S&P Capital IQ

In the next three years, LRCX is expected to report an adj. revenue and an adj. Net income growth at a CAGR of 12.30% and 15.91% between FY2019 and FY2025. Analysts are also bullish on improved profitability given notable improvements in net income margin from 22.7% in FY2019, 26.7% in FY2022, and finally a stellar 27.4% in FY2025.

For fiscal 2023, LRCX is expected to report revenue of $19.12 billion and net income of $5.01 billion, up an impressive 11.03% and 8.9%, respectively, despite the tougher year-over-year comparison. compared to the previous year. For Q1 2023, analysts are forecasting revenue of $4.93 billion and earnings per share of $9.56, indicating impressive year-over-year growth of 14.47% and 14.41%, respectively. Given that LRCX has beaten consensus estimates for most of the past seven straight quarters, we expect similarly excellent results going forward. This could then potentially trigger a short-term rally.

So, is LRCX stock a buy?Sell ​​or hold?

LRCX 5Y EV/Sales and P/E Ratings

LRCX 5Y EV/Sales and P/E Ratings

S&P Capital IQ

LRCX is currently trading at 3.10x EV/NTM Sales and 11.34x NTM P/E, which is relatively in line with its 5-year EV/Sales median of 3.63x but lower than its 5- Annual P/E median of 15.27x. The stock is also trading at $421.76, down -42.3% from its 52-week high of $731.85, albeit at a 12.2% premium from its 52-week low from $375.87. Elsewhere, consensus estimates remain bullish on LRCX’s prospects given its price target of $569.11 and a 34.94% increase from current prices.

LRCX 5Y stock price

LRCX 5Y stock price

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LRCX dividend payout and yield

LRCX dividend payout and yield

S&P Capital IQ

Long-term LRCX investors would have been happy with recent dividend increases as well, with a payout of $6.45 for 2022, assuming another $1.725 for Q4. While its 1.52% dividend yield is significantly lower than other industries, it’s better than its peers like KLA Corporation (NASDAQ:KLAC) at 1.35% and Applied Materials (NASDAQ:AMAT) at 1.12% currently.

Combined with the $3.86 billion in share repurchases exercised in FY2022, it is evident that LRCX has returned a lot of value to its investors considering the diluted shares outstanding were up -3.6% year-on-year to 138 .31 million by FQ4’22. That’s notable given that stock-based compensation is up 17.6% year over year at the same time to $259.06 million.

However, given the tightened U.S. restriction on tech exports to China, we can expect the stock to continue to surge despite management’s lower estimates for the first quarter of 2023 in its previous earnings call. This is because the country accounts for 31% of the company’s revenue in FQ4’22. This, of course, is higher than UBS analyst Timothy Arcuri’s lower estimates of a 10 percent revenue impact going forward, which is attributed to LRCX’s long-term relationship with several Chinese semiconductor companies.

Additionally, LRCX could decline slightly over the next two quarters as Mr. Market bears the brunt of the Fed’s aggressive rate hikes through 2023 as August CPI remains elevated from 8.3% versus 2% pre-pandemic. As a result, we encourage conservative investors to wait for a deeper retracement and, importantly, clearer guidance from management on its upcoming conference call before adding LRCX.

Nonetheless, given the relatively attractive risk/reward trade-off and stock valuations near bottoms, those with higher risk tolerance and a longer-term outlook should nibble at current levels.

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