Lam Research Short
Lam is an American company specializing in semiconductor equipment. Around 30% of their revenue comes from China which already is a big red flag considering the lockdowns that are going on in there right now. China recently delayed their GDP number report with no reason given or a new date which adds on more my point that economically, they are struggling right now. Supply chain issues are another thing that I believe they are struggling with right now. Since the beginning of the year that had already been an issue however, I believe it to have gotten much worse this time around due to the lockdown. Since Lam has offices all around the world, I assume many of their equipments or products are imported from China due to cheaper costs. Now that china is under a lockdown, their other operations are also being affected by it. Something else worth taking into consideration is the fast rising levels of operation costs which cuts heavily into profit margins. However, taking a look at their EPS estimate, it’s showing different things. Their last quarter’s reported EPS was 8.83 and for this quarter, the expected is 9.57. This could show that I’m wrong about the company financially struggling and that they have found a way to adapt to the environment. But taking a look at their stock price the last three months, it has lost around 25% of its value so the high EPS doesn’t make sense to us. Lam has also missed the EPS estimates once over the last three years so taking a look back at their history, chances are they will beat the EPS this time as well, even with that high number. But as this is a normal thing for the company, it won’t matter much if they beat it and it wont create any reactions. Right now the main thing that matters is what the company has planned for the future. Looking at the possible problems this company could be facing (supply chain issues, Covid restrictions, etc.) they are all out of their control. This could both be a good and a bad thing depending on how investors react. Since it’s out of their control, there isn’t really much that they could be doing about it which in return could lower the people’s expectations on how they will deal with it and not expect anything from them. On the other hand, this could also make everything worse as its out of their control and make investors pull out their money from the company until everything goes back to normal. Many companies and consumers are also holding back their spending on buying products many of which could include a semiconductor so generally speaking, the demand could also be decreased.
Analyst’s opinions:
83% of Lam’s stock is owned by institutional investors so a bad report is guaranteed to have a drop in share price.
This is very important for investors to understand, because I'm sure many investors will look at Lam's current P/E of 9.32 and see an attractive valuation. They should be warned that the P/E will rise a lot as the "E" falls over the next 12 months. And the market will not wait for the data before sending the stock price lower, as current holders of the stock have experienced this year.
The stock has already fallen -56% off its highs this time around, which implies that the market thinks we are heading for a true recession of which we haven't experienced since 2009.
Fiscal 2024 EPS expectations are likely to continue falling from where they are today. Analysts were expecting $40.35 for 2024 earnings, and now they are expecting only $30.61. That's nearly a -25% cut to future earnings expectations already. This is why when Lam reports earnings this week, those earnings don't really matter a whole lot. What matters is what the market thinks earnings will be next year. Those expectations are falling rapidly and will likely continue falling as long as the Federal Reserve is raising interest rates no matter what earnings look like this week.
Report time: Tomorrow before the market opens
Expected movement: -3%
P/E Ratio: 10.05
Market Cap: 45,089,029,494