Monday, February 2, 2015

LRCX shares down sharply in the days following earnings beat

Lam Research Corporation reported earnings for Q2 fiscal year 2015 on January 28th. The stock was down slightly in afterhours trading after reporting revenues that fell in line with expectations and an EPS beat of around five cents per share. Revenue guidance for next quarter was disclosed in a range between 1.32 and 1.42 Billion USD. This guidance is higher than the 1.34 Billion USD street average for revenues next quarter. The firm increased its backlog by 20% during December, foreshadowing relatively strong sales during the coming quarters. We are very happy with the firm’s execution in their market-share growth initiatives and are very surprised by the sharp sell-off that ensued on Friday. We really see the sell-off as an opportunity for market participants to take a position in the stock. The firm is recording all time high revenue and earnings numbers, and trading in ranges notably lower than historical averages on a Price to Earnings and EV to EBITDA basis.

Company management is anticipating a very strong 2H CY 2015 due to sharp spending increases in the memory sector, the number one contributor to company revenues. The firm has also estimated that its addressable market will grow from 25% in FY2014 to 28.5% of all Wafer Fabrication Equipment (WFE) spending by the end of FY2015 due to new product launches. Non-GAAP gross margins are slated to be slightly down by around .5%-1% for the next quarter but operating margins are estimated at 19% give or take 1% compared to an operating margin of 18.7% during the December quarter.

To reiterate the quarterly results and guidance were very strong in our opinion and the recent weakness in the shares is viewed as a buying opportunity.

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