Outperform rating stays for Lam Research stock as competitive edge remains strong

On Friday, Mizuho Securities adjusted its outlook on Lam Research Corporation (NASDAQ:LRCX), a major supplier of semiconductor manufacturing equipment. The firm lowered its price target on the company's stock to $950 from the previous target of $1,050. Despite this change, the firm maintained its Outperform rating on the stock.

The decision to revise the price target follows a recalibration of expectations for Lam Research's revenue and earnings per share (EPS). The forecasted revenue and EPS for the quarter ending in September are set at $4.05 billion and $8.00, respectively, aligning with the consensus of $4.05 billion in revenue and slightly below the consensus EPS of $8.05. Looking further ahead, Mizuho's projections for the fiscal year ending in June 2025 have been adjusted from $17.7 billion in revenue and $37.05 in EPS to $17.3 billion and $35.66, respectively. This is slightly below the consensus estimates of $17.4 billion in revenue and $35.71 in EPS.

For the fiscal year ending in June 2026, Mizuho's expectations have shifted from $20.8 billion in revenue and $46.49 in EPS to $19.5 billion and $42.80. These figures are also below the consensus, which anticipates $20.5 billion in revenue and $45.21 in EPS. Additionally, Mizuho introduced its projections for the fiscal year ending in June 2027, estimating $21.2 billion in revenue and $48.41 in EPS, compared to a consensus of $22 billion in revenue and $50.41 in EPS.

The rationale behind maintaining the Outperform rating, despite the lowered price target, is based on Lam Research's competitive positioning within the semiconductor industry. Mizuho highlighted the company's "wide Wafer Fabrication Equipment (WFE) competitive moat," gains in the etch segment, and the increasing capital intensity associated with cutting-edge technology as key factors supporting the positive outlook. The new price target of $950 is based on approximately 26.6 times the firm's estimated EPS for fiscal year 2025, reflecting an 18% year-over-year growth and a premium compared to the Semiconductor Industry Index (SOX).

In other recent news, semiconductor equipment manufacturer Lam Research reported a slight beat in quarterly revenue at $3.87 billion, surpassing analyst expectations of $3.82 billion. This performance was primarily driven by increased demand for AI-powered chips. The company also announced a 15% increase in its quarterly dividend, escalating from $2.00 to $2.30 per share.

As part of its governance, Lam Research revealed that two of its board members, Lih Shyng (Rick L.) Tsai, Ph.D., and Leslie F. Varon, will conclude their service in November 2024.

Simultaneously, Lam Research appointed industry veterans Ita Brennan and Mark Fields to its board of directors. The company also launched its latest cryogenic etch technology, Lam Cryo 3.0, designed to meet the growing demand for high-capacity and high-performance memory. Additionally, Lam Research announced a $10 billion share repurchase program and a 10-for-1 stock split, set to take effect in October 2024.

Analyst firms, including Mizuho and TD Cowen, have expressed confidence in Lam Research. Mizuho maintained an Outperform rating and a stock price target of $1,050.00, while TD Cowen raised its price target on the stock to $1,050 and maintained a Buy rating.

InvestingPro Insights

Investors monitoring Lam Research Corporation (NASDAQ:LRCX) can glean additional insights from the latest InvestingPro data. The company's market cap stands at a robust $102.48 billion, reflecting its significant presence in the semiconductor sector. With a P/E ratio of 27.11, Lam Research trades at a valuation that is reflective of its industry standing and earnings capacity. Moreover, the company has demonstrated a commitment to shareholder returns, having increased its dividend for 10 consecutive years, a testament to its financial stability and consistent performance.

Despite recent market volatility, Lam Research's operational strength is evident, with a gross profit margin of 47.61% over the last twelve months as of Q4 2024, showcasing its ability to maintain profitability. In addition, the company is trading at a high price/book multiple of 12.0, which may appeal to investors looking for companies with substantial book value relative to market value. For those seeking further analysis and information on Lam Research, InvestingPro offers an array of additional InvestingPro Tips, providing deeper insights into the company's financial health and market position.

For readers interested in a more comprehensive analysis, additional InvestingPro Tips highlight Lam Research's role as a prominent player in the Semiconductors & Semiconductor Equipment industry and its ability to operate with a moderate level of debt, further solidifying its competitive edge. These insights, along with a total of 12 InvestingPro Tips available on the platform, can help investors make informed decisions when considering Lam Research as a potential addition to their portfolios.

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