Goldman Sachs Upgrades Lam Research (LRCX) and Adds to Conviction Buy List

Goldman Sachs upgraded Lam Research (NASDAQ: LRCX) from Neutral to Conviction Buy with a price target of $125.00 (from $116.00), implying upside of 20%. Analyst Toshiya Hari sees 3D NAND strength and share gains in logic.

"Continued strength in 3D NAND (Samsung in 1H17 and Toshiba/Hynix in 2H17) coupled with further signs of share gains in logic (we believe at Intel) should drive Street estimates higher and therefore the stock, in our view. While we do not necessarily subscribe to the view that 'Semi Cap is no longer cyclical', we do believe the increasingly diversified end-demand picture (i.e. less exposure to PCs, more exposure to cloud, auto etc.) and the potential emergence of China will lead to less downside volatility over the next 2-3 years," said Hari.

Discussing catalyst, the analyst said, "We recommend investors to buy Lam Research for the following three reasons: 1) Product positioning: Lam has strong and growing market share in deposition and etch – two of the fastest growing segments in WFE. 2) Upside to Street numbers: we forecast CY16/CY17 EPS of $8.92/$10.03 which are 11%/16% above the Street, respectively. While disaggregating consensus can be difficult, we believe the Street is under-estimating one or more of the following: a) growth in 3D NAND spend; b) Lam’s share gains in NAND (note Lam is much better positioned in 3D vs. planar); and c) recovery in Lam’s logic business driven by spending in MPU and image sensors (note logic shipments in the first 9 months of CY16 were down ~30% yoy). 3) Potential rerating: Lam has historically traded at a discount to peers given its outsized exposure to memory. However, we believe the improvement in its logic business in CY17 will persuade investors to value the business on a higher multiple."

For an analyst ratings summary and ratings history on Lam Research click here. For more ratings news on Lam Research click here.

Shares of Lam Research closed at $104.45 yesterday.

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