February 8, 2019

LRCX – Although management’s sentiment suggests the potential for near-term headwinds, market expectations are still too bearish, suggesting longer-term upside remains warranted

  • Lam Research Corporation (LRCX:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with an 11.6x Uniform P/E. At these levels, the market has bearish expectations for the firm, but while management has concerns about earnings growth, demand, and investments, potential macro tailwinds and competitive niches in flash storage suggest longer-term upside remains warranted
  • Specifically, management may lack confidence in their ability to sustain EPS growth and gain market share, and may be overstating the strength of their installed base business. Furthermore, they may be concerned about demand in NAND and SSD markets and positioning across segments. Moreover, they may be concerned about their ability to invest in R&D projects that address customer challenges, and may be overstating their focus on shareholder returns. Finally, they may be concerned about capex, inventory levels, and wafer fabrication equipment segment growth
  • However, given long-term industry tailwinds and strong corporate performance, it is likely LRCX can outperform bearish expectations in the long-run, indicating equity upside is warranted
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