LRCX - Embedded Expectations Analysis - 2020 11 13
Lam Research Corporation (LRCX:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.9x Uniform P/E, implying bearish expectations for the firm. Although management appears concerned about CSBG growth, China demand, and DRAM customer spend, market expectations are overly bearish, suggesting longer-term upside remains warrantedSpecifically, management may lack confidence in their ability to sustain Customer Support Business Group (CSBG) growth, remote support engagement, and days sales outstanding improvements. In addition, they may have concerns about their liquidity position, rising freight costs, and their customers' ability to ramp DRAM and NAND spending. Moreover, management may lack confidence in their ability to continue tapping into China's growing demand, grow productivity offering revenues 25% this year, and reduce node costs. Furthermore, they may be exaggerating their commitment to generating free cash flow and their ability to continue executing
Although management's concerns about CSBG growth, China demand, and DRAM customer spend suggest the potential for near-term headwinds, market expectations remain far too bearish given the firm's long-term industry tailwinds and strong corporate performance, suggesting longer-term outperformance remains 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
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- 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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