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Can Strong Memory Save Lam Research (LRCX) in Q3 Earnings?

Zacks

Lam Research Corporation LRCX is slated to report third-quarter fiscal 2018 results on Apr 17. Last quarter, the company delivered a positive earnings surprise of 17.6%.

The surprise history has been impressive in Lam’s case. The company surpassed estimates in each of the trailing four quarters, with an average of 9.16%.

The company’s shares have charted a solid trajectory in the recent times, increasing 64.6% in the past year, outperforming the industry’s gain of 50.4%.


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

Factors to Consider

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

In the fiscal second quarter, total system shipments were $2.63 billion, up 11% year over year and above the Zacks Consensus Estimate of $2.61 billion. For the to-be-reported quarter, management expects shipments to be around $3.175 billion (+/- $125 million). The Zacks Consensus Estimate is pegged at $3.18 billion.

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 quarter to be reported, the company expects revenues of approximately $2.850 billion (+/- $125 million). The Zacks Consensus Estimate is pegged at $2.85 billion.

However, volatility in the PC market remains a major concern. Weakness in the PCs could offset the expansion in the 3D NAND, impacting 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 $4.35 and the Zacks Consensus Estimate is pegged at $4.36. Hence, the difference is -0.15%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Lam has a Zacks Rank #2, which when combined with -0.15% 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.

Stocks to Consider

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

Netflix, Inc. NFLX, with an Earnings ESP of +1.30% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Waters Corporation WAT, with an Earnings ESP of +1.88% and a Zacks Rank #2.

Sensata Technologies Holding N.V. ST, with an Earnings ESP of +1.19% and a Zacks Rank #2.

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