Morgan Stanley has adjusted its outlook on Lam Research Corporation (NASDAQ: NASDAQ:LRCX), a major supplier of semiconductor manufacturing equipment.
The firm lowered its price target on the company's stock to $77.00, a slight decrease from the previous target of $77.40. Despite this adjustment, the firm maintained its Equalweight rating on the stock.
The rationale behind the price target adjustment was based on expectations around the semiconductor industry's future. Morgan Stanley anticipates that advancements in memory utilization and technology will spur an earnings recovery for Lam Research in the years 2024-2025. The company is also expected to benefit from the demand for leading-edge technology, particularly in more complex 3D architectures.
Lam Research has experienced significant multiple expansion, supported by robust trough earnings and margin expansion. However, the firm predicts a slight margin contraction due to an anticipated less favorable regional mix during the industry's upcycle.
Furthermore, Morgan Stanley foresees potential market share challenges for Lam Research as competition is expected to intensify in the coming years.
The analyst from Morgan Stanley said: "We expect memory utilization and technology advancements to drive an earnings recovery in 2024-25 and the company is well positioned to capture leading edge demand related to more complex 3D architectures. LAM has seen significant multiple expansion on the back of strong trough earnings and margin expansion, but we see slight margin contraction on a less favorable region mix in the upcycle and expect market share headwinds as competition intensifies in 2024-2025."
In other recent news, Lam Research has made significant changes to its capital structure, implementing a ten-for-one forward stock split and increasing its authorized shares of common stock tenfold.
The company has also reported quarterly revenue of $3.87 billion, surpassing analyst expectations, largely due to increased demand for AI-powered chips. Lam Research declared a 15% increase in its quarterly dividend, raising it from $2.00 to $2.30 per share.
Mizuho Securities has maintained its Outperform rating on Lam Research, despite lowering its price target from $1,050 to $950, based on the company's competitive positioning within the industry. The company also announced the upcoming departure of two board members, Lih Shyng (Rick L.) Tsai, Ph.D., and Leslie F. Varon, in November 2024, and the appointment of industry veterans Ita Brennan and Mark Fields to its board of directors.
InvestingPro Insights
To complement Morgan Stanley's analysis, recent data from InvestingPro offers additional insights into Lam Research's financial position. Despite the anticipated challenges, InvestingPro Tips highlight that Lam Research has raised its dividend for 10 consecutive years and pays a significant dividend to shareholders. This consistent dividend growth could be attractive to income-focused investors, especially in light of the company's current dividend yield of 11.3%.
InvestingPro data shows that Lam Research's revenue for the last twelve months as of Q4 2023 was $14.91 billion, with a quarterly revenue growth of 20.71% in Q4 2023. This growth, coupled with a strong operating income margin of 29.02%, suggests that the company maintains robust operational efficiency despite industry headwinds.
It's worth noting that while Morgan Stanley predicts potential market share challenges, InvestingPro Tips indicate that Lam Research remains a prominent player in the Semiconductors & Semiconductor Equipment industry. The company's P/E ratio of 27.99 and its high return over the last decade further underscore its solid market position.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Lam Research, providing a deeper understanding of the company's financial health and market position.
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