Lam Research, Symantec, Netflix, Fox and Disney as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – January 26, 2018 – Zacks Equity Research highlights Lam Research LRCX as the Bull of the Day and Symantec Corporation SYMC as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Netflix NFLX, Fox FOXA, Disney DIS.

Here is a synopsis of all five stocks:

Bull of the Day:

Lam Researchdelivered the "earnings trifecta" on January 24 and shares suffered a stunning reversal of fortune the next day after nearly touching their 52-week high just below $220. I believe this profit-taking is presenting an excellent buying opportunity and this report will explain why.

The triple play of earnings goodness I refer to is both top and bottom lines beats and raised guidance for the current quarter, as well as a generally sunny outlook for the coming year.
 
Lam reported Q2 FY2018 (ends in June) EPS of $4.34 vs the Zacks consensus of $3.69 for a 17.6% beat.
 
The company did take a write-down of $757 million to offset tax code changes affecting its over $2.5 billion in overseas cash. So that shows up as an unadjusted loss for the quarter of 6-cents.
 
Revenue in the December quarter rose 37% year-over-year to $2.58 billion vs. analyst models projecting $2.567 billion.

Guidance, Estimates and the Zacks Rank

Lam Research generates the majority of its revenue in Asia with large customers like Micron and Samsung.

After reflecting on another quarter of record results, Lam Research CEO Martin Anstice said the company expects 2018 to bring "record levels of customer equipment spending and another year of outperformance opportunity for the company."
 
For the current Q3, Lam management sees revenue in a range of $2.73 billion to $2.98 billion, $200 million ahead (at the midpoint) of the consensus $2.65 billion estimate. EPS is seen in a range of $4.20 to $4.50, versus the Zacks consensus for $3.81.

While LRCX is currently a Zacks #2 Rank Buy, the company's raised guidance will inspire Wall Street analysts to start reworking their models and raise their sales and EPS estimates. Within a few days, we should see the Q3 consensus climb 10-15% and get close to that $4.35 midpoint.

The full fiscal year (ending in June) should see estimates rise over $15, representing nearly 50% EPS growth and keeping the P/E multiple under 14X.

And as top line estimates climb over $10.5 billion, Lam is looking at full-year sales growth of over 30%.
 
CEO Anstice also noted that "semiconductor innovation is contributing increased value in a data-driven economy and we believe that trend is quite fundamental, exciting and sustainable."
 
This sounds exactly like the outlook of my December 11 special report for Zacks Confidential, The Technology Super Cycle, where I recommended LRCX shares under $185.
 
Value in Chips?
 
The recent 2018 Barron's Roundtable had as one of its stock-pickers Scott Black, founder of Delphi Management and an old-school value guy. Here's what he said about why you own the Lam...

"It is a powerhouse in semiconductor capital equipment, and its products are used primarily in front-end wafer processing, which is becoming a $50 billion business. Lam has a 56%-57% market share in wafer etch, and about a 40% share in vapor deposition. It wants to gain another four percentage points in both through 2019."
 
Black also addressed Lam's cash position noting the company has $22 a share in net cash with over 70% (approximately $2.8 billion) trapped overseas. "Exclude that and the stock sells for 11.6 times earnings. It is a giveaway. The average company sells for 19 times earnings, and LAM isn't an average company."
 
Black describes Lam as having the "wind at its back" across multiple industries experiencing strong demand, from memory and flash to the cloud and IoT. And he thinks these growth areas provide positive earnings visibility going out two years.

Bear of the Day:

Some new tech trends, like artificial intelligence and autonomous driving, promise massive growth in the future. Others, like cyber security, are in demand right now. Nevertheless, not every cyber security firm has been witnessed consistent success. Today’s “Bear of the Day” is one of the struggling stocks in this industry, Symantec Corporation.

Symantec is one of the world’s largest cyber security firms. The company’s Norton brand is a major player on the consumer security side of things, while its enterprise offerings are used by a number of businesses around the world.

A few months ago, Symantec shares plummeted after the company reported dismal results and lowered its outlook. Now, as we approach Symantec’s fiscal third quarter earnings report date, the stock is once again looking risky. The stock is currently holding a Zacks Rank #5 (Strong Sell).

Latest Earnings and Outlook

Symantec reported its second-quarter fiscal 2018 earnings on Nov. 1. On a non-GAAP basis, the company generated revenues of $1.276 billion, up 26% year-over-year but below our consensus estimate of $1.278 billion. Meanwhile, non-GAAP earnings of 40 cents per share missed our consensus estimate by three cents.

The company noted that its booking mix is shifting faster than expected toward more “ratable revenue recognition,” which resulted in lower-than-expected revenue growth. Considering this effect, Symantec now expects non-GAAP revenues in the range of $1.250 - $1.280 billion. Further, management predicts earnings between 42 cents and 46 cents for the third quarter.

Analysts have put their projections right in the middle of these ranges. Our current consensus estimates are calling for the company to report earnings of 44 cents per share and revenues of $1.26 billion. These results would represent year-over-year growth of 37.5% and 21.5%, respectively. Those growth rates may seem exciting, but considering the company’s recent acquisition activity, this expansion—particularly on the revenue side—is likely to disappoint many investors.

Additional content:

What Netflix Thinks About the Disney-Fox Merger

Shares of Netflix closed at a new all-time high once again on Thursday, as investors continue to gush over the streaming giant’s massive user growth. However, looming in the background lies a soon-to-be streaming juggernaut.

Disney’s well-documented acquisition of key Fox assets will allow Disney to combine its own movies and original content with that of Fox’s television and film studios. This will give Disney the ability to offer customers a more beefed up version of its own over-the-top streaming service, which is tentatively set to launch in 2019.

But Netflix isn’t worried about the entry of a powerful new competitor, which will also take with it nearly all of Disney’s and Fox’s content down the road. “We don't see it as a threat to us any more than Hulu has been,” Netflix’s often-candid Founder and CEO Reed Hastings said in its recent earnings interview (also read: What Reed Hastings Credits for Netflix's Historic Growth).

In fact, Netflix has been preparing for such eventualities for years. The company knew that streaming was the future long before most, and therefore, Netflix executives understood that when it really caught fire, networks and entertainment companies would be less willing to license their content.

Netflix has been bolstering its original programming division to prepare for the age of subscription-based entertainment. When asked to speculate about the likes of other entertainment giants starting up their own streaming services, Netflix executives were still unshaken.

“I would say the big bet they have to make to us, can they make more money licensing their content to us or somebody else than they—by having their own services and managing their own services? That remains to be seen,” Chief Content Officer Ted Sarandos said.

Hastings even went as far as to say he would happily sign up for Disney’s streaming platform when it makes its debut.

The company also reassured fans of the popular Netflix Marvel TV shows that they have nothing to worry about, for now. Netflix has leased the rights to those products and “get to use them for a very long time.”

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About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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Walt Disney Company (The) (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Symantec Corporation (SYMC) : Free Stock Analysis Report
 
Twenty-First Century Fox, Inc. (FOXA) : Free Stock Analysis Report
 
Lam Research Corporation (LRCX) : Free Stock Analysis Report
 
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