Option Trade 
Lam Research Corporation (NASDAQ:LRCX) Calls
Monday, October 16, 2017

** OPTION TRADE: Buy the LRCX NOV 17 2017 195.000 CALL at approximately $5.20. Place a pre-determined sell at $10.40.

Also include a protective stop loss of $2.10.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Lam Research Corporation (NASDAQ:LRCX), is recognized as a leading supplier of wafer fabrication equipment and services to the semiconductor industry; a large-cap growth stock who designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits; is likely to "kick off a strong earnings season" for the semiconductor capital equipment group when it reports September-quarter results after the market close Tuesday October 17. Last quarter, the company delivered a positive earnings surprise of 2.98%. The company surpassed estimates in each of the trailing four quarters, with an average beat of 4.44%.

The company's shares have charted a solid trajectory in recent times, increasing more than 76.9% year to date, outperforming the industry’s gain of 59.4%.

Lam Research Corporation has a 50-day moving average price of $175.34 and a 200-day moving average price of $156.12. The stock has a market cap of $30.85 billion, a P/E ratio of 20.55 and a beta of 1.53. Lam Research Corporation has a one year low of $93.69 and a one year high of $190.31.

Influencing Factors

Despite an impressive rally in its shares, Lam Research still has several important tailwinds behind it.

Lam Research has high exposure to the memory segment, which is likely to witness strong growth in the coming quarters. The strength is driven by cloud computing, big data, mobile devices and IoT.

The company is doing well and expects to succeed in areas such as device architecture, process flow and advanced packaging technology inflections.

The company also continues to see increased adoption rates for 3D NAND technology, FinFETs and multi-patterning. The company has undertaken cost-reduction activities and density scaling for 3D NAND and new memory technologies.

The company has been on a run, with revenues rising steadily: And margins steadily improving: And this has continued this year. Operating income grew at twice the rate of operating expenses, even including a substantial increase in R&D spending. Cash from operations was a whopping $729M, up from $423M in the previous (March) quarter.

Another tailwind is their service income, which rose about 40% on last year. This is simply the result of having a larger installed base, a larger breadth of products and services and the increasing complexity of products. So this tailwind is likely to last.

Management also explained during the Q4CC that it is a part of their business that generates lots of cash, is a little accretive to operating income on a percentage basis and doesn't need anywhere near the amount of investment that is required in the new equipment side.

China remains another great opportunity with the country lurching into becoming an important player in chips

All these factors could positively impact the top-line figure of the company.

Analysts and Hedge Funds Opinions

Needham analyst Edwin Mok raised his price target from $200 to $220 on Lam Research  with a BUY rating.

Mok expects Lam to give "solid" December-quarter guidance with an outlook calling for shipments to grow further in the first half of 2018.

"While Lam stock has rallied recently on very bullish near-term sentiment, we expect upbeat commentary on first-half 2018 shipments/revenue to keep this rally going," Mok said.

Zacks Investment Research upgraded shares of Lam Research Corporation from a sell rating to a hold rating in a research note released on Friday.

According to Zacks, “Lam Research Corp. is a leading global provider of innovative wafer fabrication equipment and services to the semiconductor industry. The company reported better-than-expected fiscal fourth quarter 2017 results with both earnings and revenues surpassing our estimates. The results were driven by strong success in the areas of device architecture, process flow and advanced packaging technology inflections. Year to date, the stock has outperformed the industry it belongs to.  The company has been improving on WFE market share significantly since 2013 and expects to continue making gains, going forward.”

Several other analysts have also recently commented on the company…..

  • Berenberg Bank restated a “buy” rating on shares of Lam Research Corporation in a research report on Sunday, July 30th.
  • Argus assumed coverage on shares of Lam Research Corporation in a research report on Tuesday, September 12th. They set a “buy” rating and a $196.00 price target for the company.
  • B. Riley restated a “buy” rating and set a $220.00 price target on shares of Lam Research Corporation in a research report on Tuesday, August 15th.
  • Finally, Stifel Nicolaus reissued a buy rating and issued a $215.00 price target (up previously from $189.00) on shares of Lam Research Corporation in a research note on Thursday, July 27th.
Five analysts have rated the stock with a hold rating and eighteen have assigned a buy rating to the company’s stock. The company presently has a consensus rating of “Buy” and a consensus price target of $200.94.

Several institutional investors have recently made changes to their positions in the stock, to name a few….

  • Piedmont Investment Advisors LLC increased its position in Lam Research Corporation by 3.6% in the second quarter. The fund owned 42,579 shares of the semiconductor company’s stock after acquiring an additional 1,482 shares during the period. Piedmont Investment Advisors LLC’s holdings in Lam Research Corporation were worth $6,022,000 as of its most recent filing with the Securities and Exchange Commission (SEC).
  • 1st Global Advisors Inc. purchased a new stake in shares of Lam Research Corporation in the second quarter. The fund purchased 5,394 shares of the semiconductor company’s stock, valued at approximately $763,000.
  • Finally, Mitsubishi UFJ Securities Holdings Co. Ltd. grew its position in shares of Lam Research Corporation by 358.3% during the 2nd quarter. Mitsubishi UFJ Securities Holdings Co. Ltd. now owns 1,100 shares of the semiconductor company’s stock valued at $156,000 after purchasing an additional 860 shares in the last quarter.

Harvey’s Options Volatility Indicator

Summary

The company has considerable tailwinds still behind it. The WFE market keeps on growing, the company is likely to make further inroads in the market, and there is a considerable amount of operational leverage. Add to this their growing installed base with the accompanied increase in servicing income, and dividends and share buybacks and it amounts to a strong tailwind.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the LRCX NOV 17 2017 195.000 CALL at approximately $5.20. Place a pre-determined sell at $10.40.

Also include a protective stop loss of $2.10.

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.



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