On Tuesday, Stifel maintained a positive outlook on Lam Research (NASDAQ:LRCX), raising its stock price target to $1,050 from the previous $950, while keeping a Buy rating on the stock. The adjustment reflects the firm's confidence in the semiconductor company's prospects, anticipating a significant recovery in the industry.
The firm believes that the current year's focus should shift from last year's inflection points to the magnitude of the industry's recovery. Stifel is optimistic about the initial areas of growth, such as High Bandwidth (NASDAQ:BAND) Memory (HBM) and advanced packaging, expecting evidence of a broader expansion.
Despite a projection of a flat second quarter, closely following a downward-biased first quarter, the firm foresees less immediate impact on estimates.
While China's spending remains a concern, new project activities have been reported, which may counterbalance fears of a decline. Moreover, with advanced foundry and DRAM nodes experiencing tight or tightening utilization, there is an anticipation of upward pressure on initial capital expenditure forecasts for 2024.
This scenario is expected to lead to a stronger order book in the second half of the year and could potentially surpass the firm's forecast of 15% compound annual growth for the semiconductor equipment market in 2025.
Stifel has long regarded Lam Research as one of the more robust and effectively managed companies within the semiconductor and semiconductor equipment sectors. After a year where wafer fabrication equipment (WFE) spending underperformed, Lam Research is well-positioned for a reversal in the current year.
This turnaround is supported by a rebound in memory WFE, which is projected to grow in 2024, aided by easier comparisons to the previous year as well as increased spending on technology roadmaps and High Bandwidth Memory.
The firm's upgraded stock rating to Buy in July 2023 was influenced by positive near-term spending trends and the emergence of AI-driven HBM as a key growth catalyst. With these factors in mind, Stifel's revised price target suggests confidence in Lam Research's earnings power and its trajectory within the growth-oriented, cyclical semiconductor industry.
InvestingPro Insights
As Stifel raises its price target for Lam Research (NASDAQ:LRCX), investors may find additional context in the company's financial health and market performance through real-time data from InvestingPro.
Currently, Lam Research has a market capitalization of $126.34 billion, reflecting its significant presence in the semiconductor sector. Despite a challenging year with revenue declining by 24.84% over the last twelve months as of Q2 2024, the company's gross profit margin remains strong at 45.94%.
InvestingPro Tips highlight Lam Research's decade-long track record of raising dividends, now standing at 11 consecutive years, underscoring its commitment to shareholder returns. However, analysts are cautious, anticipating a sales decline in the current year and expecting net income to drop.
These factors contribute to the company trading at a high earnings multiple, with a P/E ratio of 37.11. It's noteworthy that the stock has experienced significant volatility, yet it has provided a high return over the last year, with a 95.19% price total return as of the date provided.
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