On Thursday, B.Riley maintained a Buy rating on Lam Research (NASDAQ:LRCX) and increased its stock price target to $1,130 from $1,100. The firm's decision came after Lam Research reported its third fiscal quarter 2024 results and provided guidance for the fourth fiscal quarter the day before, which showed a slight improvement. The results were driven by higher Systems sales and better gross margins, leading to visible earnings per share beats.
Lam Research's earnings announcement revealed that the company's industry wafer fabrication equipment (WFE) outlook for the calendar year 2024 is now approximately $93 billion, a 5% increase from previous estimates.
This adjustment aligns with B.Riley's forecast and is partly attributed to higher sales of lithography systems in China, specifically to ASML (AS:ASML), a key player in the semiconductor equipment industry. Moreover, the company is experiencing growth in high-bandwidth memory (HBM) and leading-edge foundry and logic sales, despite a decline in mature foundry outside of China and an increase in NAND sales.
Despite the stock's initial post-earnings increase of 2% after market close, it later dipped by 2%. B.Riley suggests that the dip might be due to concerns over the sustainability of China sales, which saw a significant increase of 42% in the third fiscal quarter.
Still, the firm views this as a buying opportunity, anticipating a potential multi-year rally based on rising foundry and memory utilization. Historical patterns from 2017-2018, 2019-2020, and 2021-2022 suggest that significant stock gains are possible when industry and memory spending increase robustly, as projected for calendar years 2025 and 2026.
The analysis also points to signs of an AI-led cyclical recovery, bolstered by advanced architecture tailwinds, including an expected $1 billion in gate-all-around sales in the calendar year 2024 and an additional $1 billion total addressable market (TAM) for backside power.
While some may be cautious about the normalization of China's sales mix, B.Riley expects rising memory utilization to fuel growth in Systems and Services. With strong operating cash flow anticipated to support high excess cash returns, the firm has raised its fiscal year 2024 and 2025 earnings per share estimates by 3-4%.
The revised price target of $1,130 implies a 33% upside potential, reaffirming the Buy rating on Lam Research shares.
InvestingPro Insights
Following B.Riley's optimistic outlook on Lam Research (NASDAQ:LRCX), an analysis of real-time data from InvestingPro enriches this perspective. The company's dedication to shareholder returns is evident in its 10-year history of raising dividends, a testament to its financial resilience.
Despite analysts' concerns about a potential sales decline in the current year, Lam Research remains a formidable force in the Semiconductors & Semiconductor Equipment industry, with a solid track record of profitability over the last twelve months.
InvestingPro Data highlights a robust market capitalization of $116.01B, indicating the company's significant presence in the market. While the P/E Ratio stands at 34.32, reflecting a premium valuation, the company's Gross Profit Margin remains strong at 47.19%, showcasing its ability to maintain profitability. Moreover, the 6-month price total return of 52.43% underscores the stock's recent performance surge, which aligns with B.Riley's assessment of the stock's potential for significant gains.
To gain deeper insights and additional InvestingPro Tips, such as Lam Research's moderate level of debt and its high return over the last five years, investors can explore https://www.investing.com/pro/LRCX. There are 11 more InvestingPro Tips available, which can be accessed with an additional 10% off a yearly or biyearly Pro and Pro+ subscription using the coupon code PRONEWS24.
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