Lam Research Corp. (LRCX) manufactures, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits worldwide.
It offers thin film deposition, plasma etch, photoresist strip, and wafer cleaning. Lam Research Corporation was incorporated in 1980 and is headquartered in Fremont, California.
I am bullish on LRCX stock. The company has a strong financial strength and the profitability trend is very supportive. It has the potential to outperform the Nasdaq and S&P 500 in 2022.
Lam Research ends its fiscal year on June 27. In this article, an analysis of key financial metrics will focus on FY 2021.
For the latest quarter ended on December 26, 2021, Lam Research reported normalized EPS of $8.53 which was a beat by $0.02, EPS GAAP of $8.44, a beat by $0.01, and revenue of $4.23 billion, a miss by -$188.09 million.
Lam Research Annual Report 2021 Insights
Full-year revenue was $14.63 billion, cash flow from operations was $3.59 billion, and $3.28 billion was returned to shareholders as capital return, consisting of $727 million in dividends and $2.55 billion in repurchases, whereas $1.49 billion was invested in research and development. The diluted EPS was $26.90.
In FY 2021, revenue growth reported was 45.66%, a surge after growth of 4.13% and -13.04% for FY 2020 and FY 2019, respectively.
Net income of $3.91 billion in FY 2021 grew 73.57% and diluted EPS of $27.22 increased 75.03%.
What investors will like a lot about Lam Research is the stability in its gross margin. For the period 2017-21, the gross margin is within a range of 45-46.6% with a TTM value of 46.3% near the upper range.
The operating margin for FY 2021 was 30.6%, which was the highest figure in five years of analysis. The same note applies to the net margin, which was 26.72% in FY 2021.
Lam Research has strong free cash flow generation, which witnessed a decline of 33.05% in FY 2020 to $1.92 billion but increased 68.42% to $3.24 billion in FY 2021. The balance sheet is moderate with a D/E of 0.77 as per last quarter, but the cash/debt ratio of 1.07 is considered strong.
The firm is performing well in terms of operating efficiency as fixed assets, turnover, and asset turnover both improved in FY 2021.
Lam Research has plenty of growth evidenced by its 10-year average growth of 16.28% for revenue, 10-year average growth of 18.57% for operating income, and 10-year average growth of 16.60% for EPS.
Fundamentals – Risks
Lam Research Corp has shown predictable revenue and earnings growth as mentioned but it has mentioned it faced the effects of COVID-19, labor shortages, freight, and logistics cost escalations, and supply chain constraints.
Valuation
The stock has a price/ratio of 4.83 which stands at its one-year low, whereas the stock dividend yield is close to a one-year high.
LRCX stock is attractive based on its P/E Ratio (17x) compared to the U.S. Semiconductor industry average (23.1x), and has a PEG ratio of 0.90.
Wall Street’s Take
Lam Research has a Moderate Buy consensus based on 11 Buys and six Holds. The average Lam Research price target of $738.79 represents 27.1% upside potential.
Conclusion
This semiconductor stock has excellent fundamentals, an attractive valuation, and plenty of growth.
It could deliver well-adjusted returns in 2022, as semiconductor investments and demand are expected to increase to cover the supply shortages.
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