Rating downgrade of Lam Research dampens recovery hopes; stock dips 4%

The recovery of Lam Research (LRCX) from last year’s lows had received a boost after the latest earnings report but the momentum faded in recent weeks, hitting investor sentiment. Market watchers have cautioned that the lull in the semiconductor market might continue this year and beyond due to weak demand for memory chips.

Citing the delay in the expected rebound, research firm Evercore Wednesday downgraded Lam’s stock to in-line from outperform and slashed the target price to $195 from $225. The stock slipped about 4% in pre-market trading following the report, after closing the previous session slightly lower. According to the analyst, the memory market is unlikely to recover before the second half of next year.

According to the analyst, the memory market is unlikely to recover before the second half of next year

The semiconductor equipment provider, which has an average rating of outperform, has been a favorite of investors as the general outlook for the stock remains positive. However, the current trend calls for caution when it comes to short-term investment.

For its latest fiscal quarter ended March 2019, Lam Research reported a 23% fall in earnings to $3.70 per share on revenues of $2.4 billion, which is down 16% year-over-year. The decline, however, was not as intense as analysts’ had forecast. Then, the management forecast that adjusted earnings will grow about 20% year-over-year in the June quarter supported by strong revenue growth.

Also see: Lam Research Q3 2019 Earnings Conference Call Transcript

For the semiconductor industry, 2018 was a grim year when the softening global economy and the impact of the US-China trade war, combined with the cryptocurrency crash, weighed down on the companies. Meanwhile, reflecting the ongoing improvement, the semiconductor index of S&P 500 gained 25% so far this year.

Lam Research shares gained 37% since the beginning of 2019, after slipping to a 16-month low in December last year. In the past twelve months, the stock moved up about 6%. Rival tech firm Applied Materials (AMAT) lost about 3% early Wednesday after the market reacted negatively to the weak outlook for the chip market.

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