LRCX- Embedded Expectations Analysis - 2018 04 25
Lam Research Corporation (LRCX:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Earnings, but well below corporate averages, with a 9.4x Uniform P/E, implying bearish expectations for the firm. However, management is confident in their product portfolio, WFE demand, and gross margin, implying longer-term outperformance is likely, particularly in light of strong industry momentum and a bullish analyst outlookSpecifically, management is confident in their focus on strengthening the competitiveness and relevance of their product portfolio as the world transitions to the data economy, and in their 500 VECTOR Strata PECVD product shipments leading to enhanced codependency in multi-stack deposition applications in 3D NAND. Additionally, they are confident that silicon based artificial intelligence, driven by security and transportation needs, will drive WFE demand, and that gross margin for the period was towards the higher end of their guided range. Long-term expectations are therefore far too bearish, and, should the firm simply maintain recent Uniform ROA trends, further equity upside for LRCX would be warranted
Lam Research is a supplier of wafer fabrication equipment and services to the semiconductor industry. The company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company's customer base includes semiconductor memory, foundry, and integrated device manufacturers that make products such as non-volatile memory, dynamic random-access memory, and logic devices. The company's services include customer service, spares, improvement, and refurbishment of its deposition, etch, and clean products. The company sells its products and services to companies in the United States, China, Europe, Japan, Korea, Southeast Asia, and Taiwan.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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