Analysts' Choice: By The Numbers, Lam Still A Winner

10/23/2017


  Recent Price
$200
  Dividend
$1.80
  Yield
0.9%
  P/E Ratio
17
  Shares (millions)
184
  Long-Term Debt As % Of Capital
20%
  52-Week Price Range
$200.91 - $93.69

What a difference a decade makes.

Ten years ago, Lam Research ($200; LRCX) made one semiconductor-etching product, which allowed it to target about 10% to 15% of the market for wafer-fabrication equipment, mostly related to personal computers. Today, Lam produces a variety of etching, cleaning, and deposition machines and provides a range of services to chipmakers. Lam's addressable market has expanded to more than 35% of the industry.

Lam, a Focus List Buy and a Long-Term Buy, has grown to No. 2 in annual sales ($8.9 billion) and stock-market value ($35.8 billion) among U.S. semiconductor-equipment makers. The company wears its market leadership well, delivering the growth of a much smaller firm without becoming too expensive.

Over the last 12 months, the shares have returned 107%, bolstered by growth of 50% in sales, 83% in per-share profits, and 30% in operating cash flow. Despite that strong growth, you can still purchase Lam for 17 times trailing earnings, 20% below the industry median and 26% below the company's five-year average.

10 good reasons

In honor of Lam's 10-year transformation, here are 10 numbers that provide cause for excitement about the stock:

• 19 — the number of quarters since Lam Research failed to top consensus per-share-profit targets.

• $105 billion — global semiconductor sales in the three months ended August. Sales are the highest on record, according to the Semiconductor Industry Association, and have jumped 24% from the same period a year earlier.

• 99 — Lam's Quadrix Overall score, tied for highest among S&P 1500 Index semiconductor-equipment stocks.

• 4 — the number of Quadrix categories (Momentum, Quality, Earnings Estimates, and Performance), for which Lam scores 90 or higher.

• 1,060 — the number of basis points of improvement in Lam's operating profit margins over the last three years (up to 31.2% from 20.6%).

• $2.0 billion, or $10.71 per share — Lam's free cash flow in the last 12 months. Up 65% from a year ago, and enough to support continued dividend growth.

• 50% — the size of Lam's last dividend increase, announced Nov. 18. A big hike in the next few weeks wouldn't surprise us.

• 49%, 18%, and 30% — analyst targets for per-share-profit growth in the December quarter, March quarter, and fiscal 2018 ending June. Given Lam's recent guidance (see below), those targets could rise.

Another strong quarter

In the September quarter, Lam earned $3.46 per share, up 91% and $0.18 above the consensus. Sales jumped 52%, also exceeding expectations. An acquisition contributed to the growth, while profit margins continued to widen. For the December quarter, Lam projects per-share profits of $3.53 to $3.77, well above the $3.33 consensus. Lam expects industry demand to remain strong in the year ahead, and also expects to grow faster than the industry.

You can obtain an annual report for Lam Research Corp. at 4650 Cushing Parkway, Fremont, CA 94538, (510) 572-0200, www.lamresearch.com.

LAM RESEARCH
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '17
3.46
vs.
1.81
52%
185.23
-
139.24
19 - 14
Jun '17
3.11
vs.
1.80
52%
167.05
-
124.91
19 - 14
Mar '17
2.80
vs.
1.18
64%
129.35
-
105.79
18 - 15
Dec '16
2.24
vs.
1.57
32%
110.35
-
93.69
17 - 15
           
Year
(Jun.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2017
8.01
9.96
1.50
167.05
-
80.68
17 - 8
2016
5.89
6.37
1.20
87.19
-
61.20
14 - 10
2015
5.26
3.70
0.72
85.70
-
65.78
23 - 18
2014
4.61
3.62
0.00
67.99
-
44.10
19 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
99
66
99
81
87
93

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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