LRCX - Embedded Expectations Analysis - 2020 05 15
Lam Research Corporation (LRCX:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 14.2x Uniform P/E. At these levels, the market has bearish expectations for the firm, and although management appears concerned about coronavirus, memory products demand, and their capital allocation, potential macro tailwinds and competitive niches in flash storage suggest longer-term upside remains warrantedSpecifically, management may have concerns about the impact of the coronavirus pandemic, the stability of their supply chains, and the sustainability of memory demand. Furthermore, they may be overstating their rigorous safety focus at on-site locations, the sustainability of customer foundry and memory investments, and the healthy fundamentals of the memory market. Moreover, they may be exaggerating their ability to fulfill their order book, their engineers' level of engagement with customers, and their capital allocation prudence
However, although management's concerns about coronavirus, memory products demand, and their capital allocation suggest the potential for near-term headwinds, market expectations remain far too bearish given long-term industry tailwinds, suggesting longer-term outperformance is likely warranted for LRCX
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
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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