On Tuesday, B.Riley adjusted its outlook on Lam Research (NASDAQ:LRCX), reducing the price target to $105 from the previous $132.50, while still supporting the stock with a Buy rating. The firm anticipates that the first quarter of fiscal year 2025 (F1Q25) results will slightly surpass the consensus expectations, predicting revenues of $4.050 billion, a 4.6% increase, with earnings per share (EPS) of $0.80. For the second quarter (F2Q25), the forecasts are also optimistic, aligning with or slightly exceeding the consensus of $4.247 billion in revenue and $0.85 EPS.
Lam Research's calendar year 2024 wafer fabrication equipment (WFE) outlook is estimated at around $95 billion. This includes robust growth in leading-edge Foundry/Logic sectors and gains in Mature Foundry led by China, transitions from DRAM DDR4 to DDR5, and strength in AI-related High Bandwidth (NASDAQ:BAND) Memory (HBM). Although NAND capacity purchases are expected to be a limiting factor, the company sees potential in layer count conversions. The advanced packaging segment is also projected to do well, particularly with tools for silicon vias (TSV).
Looking ahead to 2025, Lam Research predicts continued strength in leading-edge Foundry/Logic related to AI, with technological advancements in gate-all-around architectures, backside power, and advanced packaging potentially presenting a $1 billion opportunity. The DRAM sector is expected to remain robust due to HBM demand, and NAND is projected to improve with conversion and capacity purchases. The company also sees a significant opportunity in dry resist products for extreme ultraviolet (EUV) customers, valued at $1 billion per year.
Regionally, activities in the United States, Japan, and Germany could boost sales, while China is expected to maintain decent levels, despite potential moderation. The analysis suggests that there may be challenges for Intel (NASDAQ:INTC) due to its volume limitations, and for Samsung (KS:005930) with weak yields and customer rosters, as well as equipment move-in deferrals in Taylor, Texas.
For the financial segments, the F1Q Systems are expected to improve with high single-digit percentage growth quarter over quarter and continue at that pace into F2Q. The Services segment is forecasted to see low single-digit growth in both quarters. Gross margin (GM) is anticipated to face a 150 basis point decrease to 47.0% in F1Q due to mixed results, with steady action in F2Q. Operating margins are expected to stabilize near 30.0%, supported by operational efficiency initiatives and disciplined operating expenses, even as investments in IT and long-term projects expand.
The firm also notes that rising inventory efficiency could positively impact cash conversion and operating cash flow, supporting continued active share repurchases. Despite the current year-to-date decline in Lam Research's stock price, which trails the semiconductor index (SOX) and peers like Applied Materials (NASDAQ:AMAT) and KLA Corporation (KLAC), B.Riley sees a 40% upside potential from the current price, justifying the reiterated Buy rating.
In other recent news, Lam Research Corporation (NASDAQ:LRCX) reported significant quarterly revenue of $3.87 billion, surpassing analyst expectations, largely due to increased demand for AI-powered chips. The company also announced a 15% increase in its quarterly dividend, raising it from $2.00 to $2.30 per share. Stifel reaffirmed its Buy rating on Lam Research, projecting the company's fourth-quarter earnings to meet or slightly exceed estimates. However, Raymond James reduced its price target for the company's stock, while maintaining an Outperform rating, reflecting a downturn in the DRAM sector within China.
Morgan Stanley also adjusted its outlook on Lam Research, lowering its stock price target but maintaining an Equalweight rating, anticipating advancements in memory utilization and technology to spur an earnings recovery for the company in the years 2024-2025. In a significant update to its capital structure, Lam Research implemented a ten-for-one forward stock split and increased its authorized shares of common stock tenfold, aimed at making stock ownership more accessible and potentially increasing market liquidity.
InvestingPro Insights
To complement B.Riley's analysis of Lam Research (NASDAQ:LRCX), recent data from InvestingPro offers additional context. Despite the reduced price target, Lam Research's financial health appears robust. The company's market capitalization stands at $94.46 billion, reflecting its significant presence in the semiconductor industry.
InvestingPro data shows that Lam Research has maintained a strong dividend policy, with an InvestingPro Tip highlighting that the company has raised its dividend for 10 consecutive years. This consistent dividend growth, coupled with a current dividend yield of 1.26%, may appeal to income-focused investors.
In line with B.Riley's positive outlook, another InvestingPro Tip notes that analysts predict the company will be profitable this year. This aligns with the firm's expectations of Lam Research surpassing consensus estimates in the upcoming quarters.
The company's financial strength is further underscored by its liquidity position, with an InvestingPro Tip indicating that Lam Research's liquid assets exceed short-term obligations. This solid financial footing supports the company's ability to invest in technological advancements and maintain its market position, as discussed in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Lam Research, providing a deeper understanding of the company's financial health and market position.
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