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Can Strong Memory Save Lam Research (LRCX) in Q2 Earnings?

Shalu Saraf
Updated

Lam Research Corporation LRCX is slated to report second-quarter fiscal 2018 results on Jan 24. Last quarter, the company delivered a positive earnings surprise of 5.81%.

The surprise history has been good in Lam’s case. The company surpassed estimates in each of the trailing four quarters, with an average beat of 5.3%.

The company’s shares have charted a solid trajectory in recent times, increasing 84% in the last year, outperforming the industry’s gain of 68.2%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Lam Research has high exposure to the memory segment, which is likely to witness strong growth in the coming quarters. The strength is driven by cloud computing, big data, mobile devices and IoT.

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The company is doing well and expects to succeed in areas such as device architecture, process flow and advanced packaging technology inflections.

The company also continues to witness increased adoption rates for 3D NAND technology, FinFETs and multi-patterning. The company has undertaken cost-reduction activities and density scaling for 3D NAND and new memory technologies. All these factors could positively impact the top-line figure of the company.

For the upcoming quarter, the company expects revenues of approximately $2.55 billion (+/- $100 million). The Zacks Consensus Estimate is pegged at $2.56 billion. Shipments are projected to be roughly $2.60 billion (+/- $100 million). The Zacks Consensus Estimate is pegged at $2.61 billion.

However, volatility in the PC market remains a major concern. The weakness in the PCs could offset the expansion in the 3D NAND, impacting the upcoming results.

Also, the company faces significant competition in all its product and service categories in the semiconductor capital equipment market.

Earnings Whispers

Our proven model does not conclusively show that Lam Research is likely to beat estimates this quarter. This 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:The Most Accurate estimate stands at $3.66 and the Zacks Consensus Estimate stands at $3.67. Hence, the difference is -0.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Also,Lamhas a Zacks Rank #3 (Hold), which when combined with a -0.27% ESP makes surprise prediction difficult.

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

Lam Research Corporation Price and EPS Surprise

 

Lam Research Corporation Price and EPS Surprise | Lam Research Corporation Quote

Stocks to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Applied Materials, Inc. AMAT, with an Earnings ESP of +0.57% and Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Western Digital Corp. WDC, with an Earnings ESP of +0.83% and a Zacks Rank #2.

Advanced Energy Industries, Inc. AEIS, with an Earnings ESP of +0.41% and a Zacks Rank #3.

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Western Digital Corporation (WDC) : Free Stock Analysis Report
 
Lam Research Corporation (LRCX) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
Advanced Energy Industries, Inc. (AEIS) : Free Stock Analysis Report
 
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