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What’s Contributing to Promising Outlook for Lam Research?

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What drove revenue growth for Lam Research?

Lam Research’s (LRCX) revenue rose 12% and 36% in 2016 and 2017, respectively. It rose 52% in 1Q18. Taiwan, Japan, China, and Southeast Asia drove growth in 2016, offset by Korea, the United States, and Europe.

Every geographic region contributed to 2017 growth, offset by China and Southeast Asia.

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How much did EPS rise?

Lam Research’s gross margin rose 15%, 38%, and 60% in 2016, 2017, and 1Q18, respectively. Its operating expenses increased 3%, 10%, and 14% in 2016, 2017, and 1Q18, respectively. As a result, its operating income rose 36%, 77%, and 119% in 2016, 2017, and 1Q18, respectively. Its adjusted operating income rose 24%, 63%, and 100%, respectively.

Other expense increased in 2016 before decreasing in 2017 and 1Q18. Its adjusted net income rose 25%, 64%, and 95% in 2016, 2017, and 1Q18, respectively. Its diluted EPS (earnings per share) rose 26%, 57%, and 91% in 2016, 2017, and 1Q18, respectively. Share buybacks enhanced its 2016 EPS.

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Dividend and price growth

LRCX’s dividend per share rose 25% and 37% in 2016 and 2017, respectively. Prices rose 33% and 74% in 2016 and 2017, respectively. That led to a downward sloping dividend yield curve. A forward PE (price-to-earnings) ratio of 12.5x and a dividend yield of 1.1% compare to a sector average forward PE ratio of 19.1x and a dividend yield of 1%.

How does LRCX compare to the broader indexes?

The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.2%, a PE ratio of 23.4x, and a YTD (year-to-date) return of 19.6%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.2%, a PE ratio of 22.3x, and a YTD return of 25.1%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 28.2x and a YTD return of 24.8%.

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What’s the revenue and EPS outlook?

Lam Research is being projected to have a 29% revenue growth in 2018. Its diluted EPS is being projected to rise 46% in 2018.

Dividend ETFs with exposure to Lam Research

The First Trust NASDAQ Rising Dividend Achievers ETF (RDVY) has a PE ratio of 15.7x and a dividend yield of 1.2%. The First Trust NASDAQ Technology Dividend ETF (TDIV) has a PE ratio of 18.0x and a dividend yield of 2.3%.

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