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What to Expect from Lam Research's (LRCX) Q2 Earnings?

Zacks Equity Research
Updated

Lam Research Corporation LRCX is set to report second-quarter fiscal 2016 results on Jan 27. Last quarter, the company posted a positive earnings surprise of 7.06%. Moreover, it posted positive earnings surprises in the four trailing quarters, with an average surprise of 5.76%.

Let us see how things are shaping up for this announcement.

Factors to Consider

Lam Research delivered strong fiscal first-quarter results with earnings beating the Zacks Consensus Estimate but revenues meeting the same. Margins also expanded, backed by higher revenues and a favorable mix.

Recently, Lam Research has made significant progress toward meeting market share targets. Also, the company rolled out products and services to expand its presence in various technology inflections, such as 3D device architecture inflections, multi-patterning, FinFET, 3D NAND and advanced packaging. These should boost results in the second quarter.

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Lam Research plans to prioritize investments in dielectric deposition and dielectrics etch — its greatest growth areas — which should aid results in the to-be-reported quarter. Momentum in this fast growing segment is backed by the company’s technology, which facilitates high volume manufacturing.

Further, the company issued decent guidance for the to-be-reported quarter. On a non-GAAP basis, revenues are expected to be approximately $1.41 billion (+/- 75 million) and earnings per share are projected to be $1.42 (+/- 10 cents) on a share count of roughly 172.0 million.

The company believes that the strong early position, commitment to customers and value enhancing collaborations will drive performance over the next several years.

However, the cyclical nature of the semiconductor industry, the inherently high fixed cost structure and product concentration remain the long-term concerns.

Earnings Whispers

Our proven model does not conclusively show that Lam will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.42. Hence, the difference is 0.00%.

Zacks Rank: Lam Research’s Zacks Rank #2 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Navios Maritime Acquisition Corporation NNA, with an Earnings ESP of +7.14% and a Zacks Rank #1.

Gilead Sciences Inc. GILD, with an Earnings ESP of +5.86% and a Zacks Rank #1.

MicroStrategy Inc. MSTR, with an Earnings ESP of +3.46% and a Zacks Rank #1.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
MICROSTRATEGY (MSTR): Free Stock Analysis Report
 
GILEAD SCIENCES (GILD): Free Stock Analysis Report
 
LAM RESEARCH (LRCX): Free Stock Analysis Report
 
NAVIOS MARI ACQ (NNA): Free Stock Analysis Report
 
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Zacks Investment Research