Lam Research Corporation LRCX is set to report third-quarter fiscal 2015 results on Apr 20. Last quarter, the company posted a positive earnings surprise of 6.25%. Moreover, it has posted positive earnings surprises in all of the last four quarters, with an average surprise of 5.14%
Let us see how things are shaping up for this announcement.
Factors to Consider
Lam Research delivered modest fiscal second quarter 2015 results with earnings beating the Zacks Consensus Estimate while revenues came in line with the same. DRAM was a bright spot during the quarter.
Further, the company provided strong guidance for the third quarter of fiscal 2015.
On a non-GAAP basis, it expects revenues of approximately $1.37 billion (+/- 50 million). Shipments are expected to be roughly $1.45 billion (+/- $50 million). Gross margin is expected to be approximately 44% (+/-1%) while operating margin is expected to be around 19% (+/-1%). Earnings per share are projected to be $1.30 (+/- 7 cents) on a share count of approximately 174.0 million.
In March, Lam Research announced the pricing of Senior Notes aggregating $1 billion. The offering closed on Mar 12, 2015, subject to customary closing conditions. The first and second tranches of $500 million each, carrying a coupon rate of 2.750% and 3.800%, are due to mature in 2020 and 2025, respectively.
The company believes that the upcoming quarter would be impacted by both a mix toward more new tools that haven't fully moved on the cost curve yet and heavier customer concentration. These items might lead to lower gross margin. Lam expects this trend to continue and extend into the June quarter. However, it foresees improvement in gross margin percentage in the second half of the year.
The company believes that its strong early position, combined with its commitment to its customers and value enhancing collaboration with them will help drive performance over the next several years.
Earnings Whispers?
Our proven model does not conclusively show that Lam will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP:Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.30. Hence, the difference is 0.00%.
Zacks Rank:Lam currently carries a Zacks Rank #2 (Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stock to Consider
Here are some companies which you may consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Columbia Sports Inc. COLM has an Earnings ESP of +5.71% and a Zacks Rank #1 (Strong Buy)
Apple Inc. AAPL has an Earnings ESP of +6.05% and a Zacks Rank #2
Amazon.com Inc AMZN has an Earnings ESP of +150.00% and a Zacks Rank #3 (Hold).
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