Intrinsic value of Lam Research - LRCX

Previous Close

$210.47

  Intrinsic Value

$3,320

stock screener

  Rating & Target

str. buy

+999%

Previous close

$210.47

 
Intrinsic value

$3,320

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of LRCX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 34.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  36.15
  51.80
  47.12
  42.91
  39.12
  35.71
  32.63
  29.87
  27.38
  25.15
  23.13
  21.32
  19.69
  18.22
  16.90
  15.71
  14.64
  13.67
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
Revenue, $m
  8,014
  12,165
  17,898
  25,577
  35,582
  48,287
  64,045
  83,176
  105,953
  132,596
  163,268
  198,073
  237,067
  280,255
  327,606
  379,061
  434,539
  493,950
  557,200
  624,200
  694,872
  769,153
  846,997
  928,383
  1,013,310
  1,101,803
  1,193,911
  1,289,708
  1,389,292
  1,492,784
  1,600,329
Variable operating expenses, $m
 
  7,568
  11,069
  15,759
  21,869
  29,628
  39,251
  50,935
  64,845
  81,116
  99,847
  120,964
  144,778
  171,153
  200,071
  231,495
  265,376
  301,658
  340,285
  381,202
  424,362
  469,726
  517,266
  566,968
  618,834
  672,877
  729,128
  787,631
  848,448
  911,651
  977,329
Fixed operating expenses, $m
 
  1,174
  1,203
  1,233
  1,264
  1,295
  1,328
  1,361
  1,395
  1,430
  1,466
  1,502
  1,540
  1,578
  1,618
  1,658
  1,700
  1,742
  1,786
  1,830
  1,876
  1,923
  1,971
  2,020
  2,071
  2,123
  2,176
  2,230
  2,286
  2,343
  2,402
Total operating expenses, $m
  6,148
  8,742
  12,272
  16,992
  23,133
  30,923
  40,579
  52,296
  66,240
  82,546
  101,313
  122,466
  146,318
  172,731
  201,689
  233,153
  267,076
  303,400
  342,071
  383,032
  426,238
  471,649
  519,237
  568,988
  620,905
  675,000
  731,304
  789,861
  850,734
  913,994
  979,731
Operating income, $m
  1,866
  3,424
  5,626
  8,585
  12,449
  17,364
  23,466
  30,880
  39,713
  50,051
  61,955
  75,607
  90,749
  107,523
  125,918
  145,908
  167,464
  190,550
  215,129
  241,167
  268,634
  297,504
  327,760
  359,394
  392,405
  426,803
  462,607
  499,846
  538,558
  578,790
  620,598
EBITDA, $m
  2,173
  3,773
  6,075
  9,168
  13,205
  18,340
  24,716
  32,462
  41,690
  52,490
  64,926
  79,043
  94,862
  112,386
  131,601
  152,485
  175,003
  199,120
  224,796
  251,997
  280,690
  310,848
  342,455
  375,501
  409,986
  445,919
  483,321
  522,222
  562,661
  604,689
  648,363
Interest expense (income), $m
  105
  68
  148
  258
  406
  598
  842
  1,144
  1,511
  1,949
  2,460
  3,049
  3,717
  4,466
  5,295
  6,204
  7,192
  8,257
  9,398
  10,612
  11,899
  13,256
  14,682
  16,176
  17,739
  19,370
  21,069
  22,837
  24,676
  26,588
  28,575
Earnings before tax, $m
  1,812
  3,355
  5,478
  8,327
  12,044
  16,766
  22,624
  29,736
  38,202
  48,102
  59,495
  72,557
  87,031
  103,057
  120,622
  139,704
  160,272
  182,293
  205,731
  230,555
  256,735
  284,248
  313,078
  343,218
  374,666
  407,434
  441,539
  477,009
  513,882
  552,201
  592,023
Tax expense, $m
  114
  906
  1,479
  2,248
  3,252
  4,527
  6,109
  8,029
  10,315
  12,987
  16,064
  19,590
  23,498
  27,825
  32,568
  37,720
  43,273
  49,219
  55,547
  62,250
  69,318
  76,747
  84,531
  92,669
  101,160
  110,007
  119,215
  128,792
  138,748
  149,094
  159,846
Net income, $m
  1,698
  2,449
  3,999
  6,079
  8,792
  12,239
  16,516
  21,707
  27,887
  35,114
  43,431
  52,967
  63,533
  75,232
  88,054
  101,984
  116,998
  133,074
  150,184
  168,305
  187,417
  207,501
  228,547
  250,549
  273,506
  297,427
  322,323
  348,217
  375,134
  403,107
  432,177

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,041
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  12,123
  9,230
  13,579
  19,406
  26,997
  36,636
  48,593
  63,108
  80,390
  100,604
  123,875
  150,283
  179,868
  212,636
  248,563
  287,603
  329,696
  374,773
  422,762
  473,597
  527,217
  583,576
  642,638
  704,388
  768,824
  835,966
  905,851
  978,534
  1,054,091
  1,132,613
  1,214,210
Adjusted assets (=assets-cash), $m
  6,082
  9,230
  13,579
  19,406
  26,997
  36,636
  48,593
  63,108
  80,390
  100,604
  123,875
  150,283
  179,868
  212,636
  248,563
  287,603
  329,696
  374,773
  422,762
  473,597
  527,217
  583,576
  642,638
  704,388
  768,824
  835,966
  905,851
  978,534
  1,054,091
  1,132,613
  1,214,210
Revenue / Adjusted assets
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
  1.318
Average production assets, $m
  1,151
  1,752
  2,577
  3,683
  5,124
  6,953
  9,222
  11,977
  15,257
  19,094
  23,511
  28,523
  34,138
  40,357
  47,175
  54,585
  62,574
  71,129
  80,237
  89,885
  100,062
  110,758
  121,968
  133,687
  145,917
  158,660
  171,923
  185,718
  200,058
  214,961
  230,447
Working capital, $m
  6,193
  1,606
  2,362
  3,376
  4,697
  6,374
  8,454
  10,979
  13,986
  17,503
  21,551
  26,146
  31,293
  36,994
  43,244
  50,036
  57,359
  65,201
  73,550
  82,394
  91,723
  101,528
  111,804
  122,547
  133,757
  145,438
  157,596
  170,241
  183,386
  197,047
  211,243
Total debt, $m
  2,863
  4,230
  7,375
  11,587
  17,076
  24,045
  32,689
  43,184
  55,679
  70,294
  87,119
  106,212
  127,602
  151,293
  177,268
  205,494
  235,927
  268,518
  303,214
  339,967
  378,735
  419,482
  462,184
  506,829
  553,417
  601,960
  652,487
  705,037
  759,665
  816,436
  875,431
Total liabilities, $m
  5,305
  6,673
  9,818
  14,030
  19,519
  26,488
  35,132
  45,627
  58,122
  72,737
  89,562
  108,655
  130,045
  153,736
  179,711
  207,937
  238,370
  270,961
  305,657
  342,410
  381,178
  421,925
  464,627
  509,272
  555,860
  604,403
  654,930
  707,480
  762,108
  818,879
  877,874
Total equity, $m
  6,817
  2,557
  3,761
  5,375
  7,478
  10,148
  13,460
  17,481
  22,268
  27,867
  34,313
  41,628
  49,824
  58,900
  68,852
  79,666
  91,326
  103,812
  117,105
  131,186
  146,039
  161,650
  178,011
  195,115
  212,964
  231,563
  250,921
  271,054
  291,983
  313,734
  336,336
Total liabilities and equity, $m
  12,122
  9,230
  13,579
  19,405
  26,997
  36,636
  48,592
  63,108
  80,390
  100,604
  123,875
  150,283
  179,869
  212,636
  248,563
  287,603
  329,696
  374,773
  422,762
  473,596
  527,217
  583,575
  642,638
  704,387
  768,824
  835,966
  905,851
  978,534
  1,054,091
  1,132,613
  1,214,210
Debt-to-equity ratio
  0.420
  1.650
  1.960
  2.160
  2.280
  2.370
  2.430
  2.470
  2.500
  2.520
  2.540
  2.550
  2.560
  2.570
  2.570
  2.580
  2.580
  2.590
  2.590
  2.590
  2.590
  2.590
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
Adjusted equity ratio
  0.128
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277
  0.277

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,698
  2,449
  3,999
  6,079
  8,792
  12,239
  16,516
  21,707
  27,887
  35,114
  43,431
  52,967
  63,533
  75,232
  88,054
  101,984
  116,998
  133,074
  150,184
  168,305
  187,417
  207,501
  228,547
  250,549
  273,506
  297,427
  322,323
  348,217
  375,134
  403,107
  432,177
Depreciation, amort., depletion, $m
  307
  350
  449
  582
  756
  976
  1,250
  1,582
  1,977
  2,439
  2,971
  3,436
  4,113
  4,862
  5,684
  6,576
  7,539
  8,570
  9,667
  10,830
  12,056
  13,344
  14,695
  16,107
  17,580
  19,116
  20,714
  22,376
  24,103
  25,899
  27,765
Funds from operations, $m
  1,718
  2,799
  4,448
  6,661
  9,548
  13,216
  17,766
  23,289
  29,864
  37,553
  46,402
  56,403
  67,646
  80,094
  93,738
  108,560
  124,537
  141,643
  159,851
  179,135
  199,472
  220,846
  243,242
  266,656
  291,087
  316,542
  343,037
  370,592
  399,237
  429,006
  459,941
Change in working capital, $m
  -311
  548
  757
  1,014
  1,321
  1,677
  2,080
  2,525
  3,007
  3,517
  4,049
  4,594
  5,147
  5,701
  6,250
  6,792
  7,323
  7,842
  8,349
  8,844
  9,329
  9,805
  10,275
  10,743
  11,210
  11,681
  12,158
  12,645
  13,145
  13,661
  14,196
Cash from operations, $m
  2,029
  2,251
  3,691
  5,648
  8,227
  11,539
  15,685
  20,764
  26,858
  34,036
  42,354
  51,809
  62,499
  74,393
  87,488
  101,768
  117,214
  133,801
  151,502
  170,291
  190,144
  211,041
  232,967
  255,913
  279,876
  304,861
  330,879
  357,947
  386,092
  415,345
  445,745
Maintenance CAPEX, $m
  0
  -139
  -211
  -311
  -444
  -617
  -838
  -1,111
  -1,443
  -1,838
  -2,300
  -2,833
  -3,436
  -4,113
  -4,862
  -5,684
  -6,576
  -7,539
  -8,570
  -9,667
  -10,830
  -12,056
  -13,344
  -14,695
  -16,107
  -17,580
  -19,116
  -20,714
  -22,376
  -24,103
  -25,899
New CAPEX, $m
  -157
  -601
  -825
  -1,106
  -1,441
  -1,829
  -2,269
  -2,755
  -3,280
  -3,837
  -4,417
  -5,012
  -5,615
  -6,219
  -6,819
  -7,410
  -7,989
  -8,555
  -9,108
  -9,648
  -10,177
  -10,696
  -11,210
  -11,720
  -12,230
  -12,743
  -13,264
  -13,795
  -14,340
  -14,903
  -15,487
Cash from investing activities, $m
  -2,059
  -740
  -1,036
  -1,417
  -1,885
  -2,446
  -3,107
  -3,866
  -4,723
  -5,675
  -6,717
  -7,845
  -9,051
  -10,332
  -11,681
  -13,094
  -14,565
  -16,094
  -17,678
  -19,315
  -21,007
  -22,752
  -24,554
  -26,415
  -28,337
  -30,323
  -32,380
  -34,509
  -36,716
  -39,006
  -41,386
Free cash flow, $m
  -30
  1,511
  2,655
  4,231
  6,343
  9,092
  12,578
  16,898
  22,135
  28,362
  35,637
  43,964
  53,447
  64,061
  75,807
  88,675
  102,649
  117,707
  133,824
  150,976
  169,137
  188,289
  208,413
  229,498
  251,540
  274,538
  298,500
  323,439
  349,376
  376,339
  404,360
Issuance/(repayment) of debt, $m
  -1,688
  2,275
  3,144
  4,213
  5,488
  6,969
  8,644
  10,495
  12,495
  14,615
  16,825
  19,093
  21,390
  23,691
  25,975
  28,226
  30,433
  32,590
  34,696
  36,753
  38,768
  40,747
  42,702
  44,645
  46,587
  48,544
  50,527
  52,550
  54,627
  56,771
  58,995
Issuance/(repurchase) of shares, $m
  -799
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2,388
  2,275
  3,144
  4,213
  5,488
  6,969
  8,644
  10,495
  12,495
  14,615
  16,825
  19,093
  21,390
  23,691
  25,975
  28,226
  30,433
  32,590
  34,696
  36,753
  38,768
  40,747
  42,702
  44,645
  46,587
  48,544
  50,527
  52,550
  54,627
  56,771
  58,995
Total cash flow (excl. dividends), $m
  -2,418
  3,786
  5,799
  8,444
  11,831
  16,061
  21,223
  27,392
  34,629
  42,977
  52,462
  63,057
  74,837
  87,752
  101,782
  116,901
  133,082
  150,297
  168,520
  187,729
  207,905
  229,036
  251,115
  274,143
  298,127
  323,081
  349,026
  375,989
  404,004
  433,110
  463,355
Retained Cash Flow (-), $m
  -922
  -873
  -1,205
  -1,614
  -2,103
  -2,670
  -3,312
  -4,021
  -4,787
  -5,599
  -6,446
  -7,315
  -8,195
  -9,077
  -9,952
  -10,814
  -11,660
  -12,486
  -13,293
  -14,081
  -14,853
  -15,611
  -16,360
  -17,105
  -17,849
  -18,598
  -19,358
  -20,133
  -20,929
  -21,751
  -22,602
Prev. year cash balance distribution, $m
 
  5,133
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  8,047
  4,594
  6,830
  9,728
  13,391
  17,911
  23,372
  29,842
  37,377
  46,015
  55,742
  66,642
  78,676
  91,830
  106,087
  121,422
  137,811
  155,227
  173,648
  193,052
  213,424
  234,755
  257,039
  280,278
  304,483
  329,668
  355,856
  383,074
  411,360
  440,752
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7,715
  4,206
  5,944
  8,010
  10,380
  12,999
  15,790
  18,652
  21,471
  24,124
  26,471
  28,439
  29,914
  30,829
  31,145
  30,856
  29,985
  28,587
  26,737
  24,531
  22,075
  19,478
  16,847
  14,275
  11,845
  9,618
  7,638
  5,927
  4,490
  3,319
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Lam Research Corporation is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes and services semiconductor processing systems that are used in the fabrication of integrated circuits (ICs). It operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. Its products are designed to enable its customers build a range of devices that are used in a range of electronic products, including cell phones, tablets, computers, storage devices, and networking equipment. Its customer base includes semiconductor memory, foundry, and integrated device manufacturers (IDMs) that make products, such as dynamic random-access memory (DRAM), negative-AND (NAND) memory and logic devices. It offers a portfolio of products that are used in several areas of the semiconductor manufacturing process flow, including thin film deposition, plasma etch and single-wafer clean.

FINANCIAL RATIOS  of  Lam Research (LRCX)

Valuation Ratios
P/E Ratio 20
Price to Sales 4.2
Price to Book 5
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 18.2
Growth Rates
Sales Growth Rate 36.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.3%
Cap. Spend. - 3 Yr. Gr. Rate 1.5%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 28.7%
Total Debt to Equity 42%
Interest Coverage 18
Management Effectiveness
Return On Assets 14.7%
Ret/ On Assets - 3 Yr. Avg. 10.5%
Return On Total Capital 16.9%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 26.7%
Return On Equity - 3 Yr. Avg. 18.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 45%
Gross Margin - 3 Yr. Avg. 44.3%
EBITDA Margin 27.8%
EBITDA Margin - 3 Yr. Avg. 23.3%
Operating Margin 23.3%
Oper. Margin - 3 Yr. Avg. 18.8%
Pre-Tax Margin 22.6%
Pre-Tax Margin - 3 Yr. Avg. 17.7%
Net Profit Margin 21.2%
Net Profit Margin - 3 Yr. Avg. 16.4%
Effective Tax Rate 6.3%
Eff/ Tax Rate - 3 Yr. Avg. 7.5%
Payout Ratio 14.4%

LRCX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LRCX stock intrinsic value calculation we used $8014 million for the last fiscal year's total revenue generated by Lam Research. The default revenue input number comes from 2017 income statement of Lam Research. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LRCX stock valuation model: a) initial revenue growth rate of 51.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LRCX is calculated based on our internal credit rating of Lam Research, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lam Research.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LRCX stock the variable cost ratio is equal to 62.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1145 million in the base year in the intrinsic value calculation for LRCX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Lam Research.

Corporate tax rate of 27% is the nominal tax rate for Lam Research. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LRCX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LRCX are equal to 14.4%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Lam Research operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LRCX is equal to 13.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6817 million for Lam Research - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 162.511 million for Lam Research is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lam Research at the current share price and the inputted number of shares is $34.2 billion.

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COMPANY NEWS

▶ Lam Research In Strong Uptrend   [Nov-17-17 04:06PM  TheStreet.com]
▶ Lam Research Cheered For Capital Return Program, Shares Jump   [Nov-15-17 04:30PM  Investor's Business Daily]
▶ Lam Research Cheered For Capital Return Program, Shares Jump   [09:31AM  Investor's Business Daily]
▶ Why Artificial Intelligence Could Boost Demand For Chipmaking Gear   [Nov-03-17 08:00AM  Investor's Business Daily]
▶ New Strong Buy Stocks for October 20th   [Oct-20-17 10:56AM  Zacks]
▶ ASML Earnings Top But Chip-Gear Maker Guides Low   [Oct-18-17 04:12PM  Investor's Business Daily]
▶ Stock Indexes Hit Record Highs As One Sector Sees Big Moves   [01:31PM  Investor's Business Daily]
▶ Dow Futures Strong On IBM Turnaround; S&P 500 Up Too   [12:08AM  Investor's Business Daily]
▶ Cramer: DRAM, Bam, Take Profits on Lam   [Oct-17-17 07:01PM  TheStreet.com]
▶ Lam Research Beats September-Quarter Targets, Guides Higher   [05:27PM  Investor's Business Daily]
▶ Lam Research tops Street 1Q forecasts   [04:17PM  Associated Press]
▶ Summer Soldiers; Supply Begets Demand: Best of Cramer   [Oct-13-17 09:00PM  TheStreet.com]
▶ Lam Research, Other Chip-Gear Stocks Earn Price-Target Hikes   [10:34AM  Investor's Business Daily]
▶ Nvidia Scores Price-Target Hike; Chip-Gear Firms Notch New Highs   [Oct-12-17 07:20PM  Investor's Business Daily]
▶ Finding Great Stocks: How Many In The IBD 50 Are Really Young?   [Oct-06-17 03:28PM  Investor's Business Daily]
▶ Can Tech Continue to Run Wild? It Sure Looks That Way   [Oct-03-17 12:00PM  TheStreet.com]
▶ 10 unlikely winners for the 3rd quarter   [Oct-02-17 07:19PM  CNBC Videos]
▶ New High Analysis: Two Fast Growing Retailers Shine Brightly   [Sep-29-17 04:15PM  Investor's Business Daily]
▶ 3 Stocks Set for Higher Highs   [Sep-28-17 05:40PM  Zacks]
▶ Lam Research Breakout Volume Is Missing   [02:59PM  TheStreet.com]
▶ 10 Under the Radar Stocks to Beat the S&P   [06:00AM  Investopedia]
▶ Should You Buy Lam Research Corporation (LRCX) Now?   [Sep-23-17 07:46PM  Simply Wall St.]
▶ Time to buy the chip stock surge?   [Sep-18-17 12:01PM  CNBC Videos]
Financial statements of LRCX
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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