Susquehanna Upgrades Lam Research On Favorable Industry Outlook

Semiconductor equipment maker Lam Research Corporation LRCX could be a beneficiary of positive industry outlook for memory prices, according to Susquehanna Financial Group.

The Analyst

Susquehanna analyst Mehdi Hosseini upgraded shares of Lam Research from Neutral to Positive and increased his price target from $200 to $250.

The Thesis

Memory spending, which accounts for about 60 percent of Lam Research's shipments, is likely to remain stable through the end of the decade, Hosseini said in a Tuesday note. (See the analyst's track record here.) 

Although technology migration is underway in both NAND and DRAM, the analyst said wafer capacity is needed to supplement the migration.

Such trends bode well for Lam Research and will help the company grow revenue by at least 5 percent in the 2017-2020 time period, Hosseini said. This, along with operating leverage and buybacks, could drive more than 10-percent earnings growth in the same timeframe, the analyst said. 

Notwithstanding investor fears concerning the end of the memory cycle, the Susquehanna analyst said he believes memory spend will remain stable — the rationale behind the firm's 26-percent FCF margin estimate through the end of the decade.

The industry view, Lam's earnings power estimate of more than $16 in calendar year 2020 and the recent pullback in shares led Susquehanna to issue the upgrade and set a price target 33 percent above current levels, Hosseini said. 

The Price Action

Over the past year, shares of Lam Research gained about 75 percent.

Following the upgrade, the shares were advancing 2.05 percent to $192.38.  

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