S&P: LRCX
Discussion Board- Unit 1- Standards and Poor’s Net Advantage
Jacquelyn Layman
Liberty University
BUSI 530 B06 Managerial Finance
Charles Smith
Revised May 8, 2014
1
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Investment Analysis- Lam Research
Abstract
This discussion is an analysis of the U.S-based etch products manufacturing company, Lam
Research [Ticker LRCX]. This discussion will briefly introduce Lam Research and its niche in the
market, as well as describe the industry conditions, and the financial position of the Lam Research
(relative to the industry and the company as a whole). We will consider the economic outlook of
Lam Research and define whether, as a potential investor; this company would be a wise
investment. Finally, a brief recap of the key financial indicators that helped to mold the
recommended investment decision.
Industry
Lam Research falls under the Information Technology sector, which represents 18% of the
S&P index. The IT sector was up 20% through December 2013, with projected growth for
Semiconductor and semiconductor equipment manufacturers remaining neutral. Factors include a
slower global market and lagging sales in semiconductors. Although some indicators are showing a
current decline, the large influx of high-tech smartphones and low priced tablets can return the
demand for semiconductors. The semiconductor market is largely cyclical and all indicators point
to the market returning to the upward swing (Goren, 2014). An estimate of earnings by S&P’s
2300+ analysts predict P/E growth of 4.0, 4.3 over the next two years. An investability quotient
(IQ) of 94% has been assigned to Lam Research by the interactive S&P stock report ("S&P
Qualitative Analysis: Lam Research", 2014).
Lam Research
Lam Research is a highly innovative manufacturer of etch products. This technology is
required to make every type of semiconductor device, and as such raises this company, as the
industry leader and an innovative leader, to a highly attractive bid. Innovation is the key factor in
the longevity of a technology-focused company. Lam Research devotes a large portion of its budget
and workforce to Research and Development, as such they remain an industry leader in innovation.
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Lam Research recently acquired Novellus, a leader in water fabrication systems and thin film
deposition, which is highly complementary to Lam’s existing etch products, a strategic merger to
place Lam in the position to become the leader in the semiconductor industry. They reported a total
sales revenue of $ 3,599 Million in fiscal year 2013 (4-Traders, 2014).
Key Financial Indicators
The key financial indicators taken into consideration in the investment recommendation
were as follows:
Net Profit Margin = 13.99%
Operating Margin – 15.64%
EBITD Margin of 11.13
Return on assets - 8.64%
Return on average equity -13.92%
Bid to Bill ratio - 1.1
P/E ratio 19.74
Institution owned -97%
(Google Finance, 2014).
Recommendation
Profitability indicators included net profit margin- above average for the industry, and an
operating margin average to slightly above competitors. . EBITD margin of 11.13 portrays a
profitably run corporation.
Valuation ratios included the bid to bill ratio of 1.1 indicating a strong demand, and P/E ratio
indicative of a high value investment.
Liquidity was gauged by the current ratio of 2.7 means that the company has $2.70 of liquid
assets to cover each $1.00 of current liabilities. This makes Lam Research liquid.
References
4-Traders (2014). Lam Research Corporation: Financials, earnings estimates and forecasts for
Lam Research Corporation | LRCX | 4-Traders. Retrieved from http://www.4-
traders.com/LAM-RESEARCH-CORPORATION-4877/financials/
Google Finance (2014). Financial Statements for Lam Research Corporation - Google Finance.
Retrieved May 15, 2014, from http://www.google.com/finance?q=NASDAQ
%3ALRCX&ei=LWZ1U6i6BNLeqAH3_IBY
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Solvency was gauged by debt to equity ratio of .22, which is far below the recommended
one or less indicating that more of the assets were paid for without the incurring of financed debt.
Suggestions based on the above date would be to invest in Lam Research as a sound long-
term investment.
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Goren, A. (2014). Lam Research Corporation (LRCX): Lam Research: A Strong Buy At Compelling
Valuations And Strong Growth Prospects - Seeking Alpha. Retrieved January 16, 2014, from
http://seekingalpha.com/article/1934011-lam-research-a-strong-buy-at-compelling-valuations-
and-strong-growth-prospects?source=reuters
S&P Qualitative Analysis: Lam Research. (May 15, 2014). Retrieved from Standard & Poor's
Netadvantage website:
www.netadvantage.standardandpoors.com.ezproxy.liberty.edu:2048/NASApp/NetAdvantage/sr
/showInteractiveStockReport.do
