Lam Research Corp Valuation – June 2016 $LRCX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Lam Research Corp (LRCX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lam Research Corporation is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes and services semiconductor processing systems that are used in the fabrication of integrated circuits (ICs). It operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. Its products are designed to enable its customers build a range of devices that are used in a range of electronic products, including cell phones, tablets, computers, storage devices, and networking equipment. Its customer base includes semiconductor memory, foundry, and integrated device manufacturers (IDMs) that make products, such as dynamic random-access memory (DRAM), negative-AND (NAND) memory and logic devices. It offers a portfolio of products that are used in several areas of the semiconductor manufacturing process flow, including thin film deposition, plasma etch and single-wafer clean.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of LRCX – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,044,160,609 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.96 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 115.06% Pass
6. Moderate PEmg Ratio PEmg < 20 21.70 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.45 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.96 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.31 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

LRCX value chart June 2016

EPSmg $3.69
MG Growth Estimate 7.60%
MG Value $87.34
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $53.44
MG Value based on 0% Growth $31.33
Market Implied Growth Rate 6.60%
Current Price $79.96
% of Intrinsic Value 91.55%

Lam Research Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.45 in 2012 to an estimated $3.69 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.6% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Lam Research Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

LRCX value chart June 2016

Net Current Asset Value (NCAV) $14.97
Graham Number $65.83
PEmg 21.70
Current Ratio 2.96
PB Ratio 2.45
Current Dividend $1.20
Dividend Yield 1.50%
Number of Consecutive Years of Dividend Growth 3


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $6,941,565,000
Total Current Liabilities $2,342,186,000
Long-Term Debt $1,407,250,000
Total Assets $10,024,262,000
Intangible Assets $1,999,338,000
Total Liabilities $4,331,923,000
Shares Outstanding (Diluted Average) 174,373,000

Earnings Per Share History

Next Fiscal Year Estimate $5.39
Jun2015 $3.70
Jun2014 $3.62
Jun2013 $0.66
Jun2012 $1.35
Jun2011 $5.79
Jun2010 $2.71
Jun2009 -$2.41
Jun2008 $3.47
Jun2007 $4.85
Jun2006 $2.34
Jun2005 $2.10
Jun2004 $0.59
Jun2003 -$0.06
Jun2002 -$0.71
Jun2001 $0.39
Jun2000 $1.53
Jun1999 -$0.98
Jun1998 -$1.27
Jun1997 -$0.37
Jun1996 $1.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.69
Jun2015 $2.90
Jun2014 $2.61
Jun2013 $1.94
Jun2012 $2.45
Jun2011 $2.96
Jun2010 $1.76
Jun2009 $1.54
Jun2008 $3.24
Jun2007 $2.74
Jun2006 $1.40
Jun2005 $0.78
Jun2004 $0.19
Jun2003 $0.01
Jun2002 -$0.04
Jun2001 $0.15
Jun2000 $0.05

Recommended Reading:

Other ModernGraham posts about the company

19 Best Stocks For Value Investors This Week – 1/9/16
Lam Research Corp Valuation – January 2016 Update $LRCX
13 Best Stocks For Value Investors This Week – 10/3/15
Lam Research Corporation Analysis – October 2015 Update $LRCX
Lam Research Corporation Analysis – October 2015 Update $LRCX

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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