Intrinsic value of Lam Research - LRCX

Previous Close

$163.53

  Intrinsic Value

$5,057

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+277%

Previous close

$163.53

 
Intrinsic value

$5,057

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+277%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2016), $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 26.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.92
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  5,886
  9,418
  14,550
  21,760
  31,572
  44,544
  61,238
  82,199
  107,933
  138,883
  175,421
  217,833
  266,321
  321,007
  381,934
  449,087
  522,396
  601,756
  687,040
  778,109
  874,825
  977,063
  1,084,717
  1,197,703
  1,315,972
  1,439,504
  1,568,318
  1,702,465
  1,842,037
  1,987,160
  2,137,997
Variable operating expenses, $m
 
  5,040
  7,711
  11,464
  16,571
  23,322
  32,010
  42,919
  56,312
  72,421
  91,437
  113,372
  138,608
  167,069
  198,779
  233,729
  271,882
  313,186
  357,572
  404,969
  455,305
  508,515
  564,544
  623,348
  684,901
  749,194
  816,235
  886,052
  958,693
  1,034,223
  1,112,726
Fixed operating expenses, $m
 
  1,692
  1,735
  1,778
  1,822
  1,868
  1,915
  1,963
  2,012
  2,062
  2,113
  2,166
  2,220
  2,276
  2,333
  2,391
  2,451
  2,512
  2,575
  2,639
  2,705
  2,773
  2,842
  2,913
  2,986
  3,061
  3,137
  3,216
  3,296
  3,379
  3,463
Total operating expenses, $m
  4,812
  6,732
  9,446
  13,242
  18,393
  25,190
  33,925
  44,882
  58,324
  74,483
  93,550
  115,538
  140,828
  169,345
  201,112
  236,120
  274,333
  315,698
  360,147
  407,608
  458,010
  511,288
  567,386
  626,261
  687,887
  752,255
  819,372
  889,268
  961,989
  1,037,602
  1,116,189
Operating income, $m
  1,074
  2,685
  5,104
  8,518
  13,179
  19,354
  27,313
  37,317
  49,609
  64,401
  81,870
  102,295
  125,493
  151,662
  180,823
  212,967
  248,063
  286,059
  326,893
  370,501
  416,815
  465,775
  517,331
  571,442
  628,085
  687,250
  748,945
  813,197
  880,048
  949,559
  1,021,808
EBITDA, $m
  1,365
  2,977
  5,480
  9,012
  13,833
  20,219
  28,450
  38,796
  51,507
  66,803
  84,868
  105,845
  129,834
  156,894
  187,048
  220,288
  256,578
  295,867
  338,092
  383,184
  431,074
  481,701
  535,012
  590,965
  649,535
  710,714
  774,509
  840,947
  910,073
  981,950
  1,056,657
Interest expense (income), $m
  59
  125
  239
  405
  637
  953
  1,372
  1,910
  2,585
  3,415
  4,413
  5,591
  6,958
  8,521
  10,284
  12,248
  14,412
  16,776
  19,334
  22,083
  25,019
  28,136
  31,432
  34,902
  38,545
  42,357
  46,339
  50,492
  54,816
  59,315
  63,993
Earnings before tax, $m
  960
  2,560
  4,865
  8,114
  12,542
  18,401
  25,942
  35,407
  47,023
  60,986
  77,458
  96,704
  118,535
  143,141
  170,539
  200,720
  233,650
  269,283
  307,560
  348,418
  391,796
  437,639
  485,899
  536,540
  589,540
  644,893
  702,606
  762,705
  825,232
  890,244
  957,815
Tax expense, $m
  46
  691
  1,314
  2,191
  3,386
  4,968
  7,004
  9,560
  12,696
  16,466
  20,914
  26,110
  32,005
  38,648
  46,046
  54,194
  63,086
  72,706
  83,041
  94,073
  105,785
  118,163
  131,193
  144,866
  159,176
  174,121
  189,704
  205,930
  222,813
  240,366
  258,610
Net income, $m
  914
  1,869
  3,551
  5,923
  9,156
  13,433
  18,937
  25,847
  34,327
  44,519
  56,544
  70,594
  86,531
  104,493
  124,494
  146,525
  170,565
  196,577
  224,518
  254,345
  286,011
  319,476
  354,706
  391,674
  430,364
  470,772
  512,902
  556,775
  602,419
  649,878
  699,205

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,828
  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
  12,264
  11,997
  18,535
  27,720
  40,220
  56,744
  78,010
  104,712
  137,494
  176,921
  223,466
  277,494
  339,263
  408,926
  486,541
  572,085
  665,473
  766,569
  875,210
  991,221
  1,114,427
  1,244,667
  1,381,805
  1,525,737
  1,676,398
  1,833,764
  1,997,857
  2,168,745
  2,346,544
  2,531,415
  2,723,563
Adjusted assets (=assets-cash), $m
  5,436
  11,997
  18,535
  27,720
  40,220
  56,744
  78,010
  104,712
  137,494
  176,921
  223,466
  277,494
  339,263
  408,926
  486,541
  572,085
  665,473
  766,569
  875,210
  991,221
  1,114,427
  1,244,667
  1,381,805
  1,525,737
  1,676,398
  1,833,764
  1,997,857
  2,168,745
  2,346,544
  2,531,415
  2,723,563
Revenue / Adjusted assets
  1.083
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
Average production assets, $m
  957
  1,535
  2,372
  3,547
  5,146
  7,261
  9,982
  13,398
  17,593
  22,638
  28,594
  35,507
  43,410
  52,324
  62,255
  73,201
  85,151
  98,086
  111,988
  126,832
  142,596
  159,261
  176,809
  195,226
  214,503
  234,639
  255,636
  277,502
  300,252
  323,907
  348,494
Working capital, $m
  6,795
  1,460
  2,255
  3,373
  4,894
  6,904
  9,492
  12,741
  16,730
  21,527
  27,190
  33,764
  41,280
  49,756
  59,200
  69,608
  80,971
  93,272
  106,491
  120,607
  135,598
  151,445
  168,131
  185,644
  203,976
  223,123
  243,089
  263,882
  285,516
  308,010
  331,390
Total debt, $m
  4,533
  6,838
  11,565
  18,205
  27,243
  39,190
  54,565
  73,871
  97,572
  126,078
  159,730
  198,792
  243,451
  293,817
  349,933
  411,782
  479,301
  552,393
  630,941
  714,817
  803,895
  898,058
  997,209
  1,101,272
  1,210,199
  1,323,975
  1,442,614
  1,566,167
  1,694,715
  1,828,377
  1,967,300
Total liabilities, $m
  6,370
  8,674
  13,401
  20,041
  29,079
  41,026
  56,401
  75,707
  99,408
  127,914
  161,566
  200,628
  245,287
  295,653
  351,769
  413,618
  481,137
  554,229
  632,777
  716,653
  805,731
  899,894
  999,045
  1,103,108
  1,212,035
  1,325,811
  1,444,450
  1,568,003
  1,696,551
  1,830,213
  1,969,136
Total equity, $m
  5,895
  3,323
  5,134
  7,678
  11,141
  15,718
  21,609
  29,005
  38,086
  49,007
  61,900
  76,866
  93,976
  113,272
  134,772
  158,468
  184,336
  212,340
  242,433
  274,568
  308,696
  344,773
  382,760
  422,629
  464,362
  507,953
  553,406
  600,742
  649,993
  701,202
  754,427
Total liabilities and equity, $m
  12,265
  11,997
  18,535
  27,719
  40,220
  56,744
  78,010
  104,712
  137,494
  176,921
  223,466
  277,494
  339,263
  408,925
  486,541
  572,086
  665,473
  766,569
  875,210
  991,221
  1,114,427
  1,244,667
  1,381,805
  1,525,737
  1,676,397
  1,833,764
  1,997,856
  2,168,745
  2,346,544
  2,531,415
  2,723,563
Debt-to-equity ratio
  0.769
  2.060
  2.250
  2.370
  2.450
  2.490
  2.530
  2.550
  2.560
  2.570
  2.580
  2.590
  2.590
  2.590
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.600
  2.610
  2.610
  2.610
  2.610
  2.610
  2.610
  2.610
  2.610
  2.610
Adjusted equity ratio
  -0.172
  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
  914
  1,869
  3,551
  5,923
  9,156
  13,433
  18,937
  25,847
  34,327
  44,519
  56,544
  70,594
  86,531
  104,493
  124,494
  146,525
  170,565
  196,577
  224,518
  254,345
  286,011
  319,476
  354,706
  391,674
  430,364
  470,772
  512,902
  556,775
  602,419
  649,878
  699,205
Depreciation, amort., depletion, $m
  291
  292
  376
  493
  653
  865
  1,137
  1,478
  1,898
  2,402
  2,998
  3,551
  4,341
  5,232
  6,226
  7,320
  8,515
  9,809
  11,199
  12,683
  14,260
  15,926
  17,681
  19,523
  21,450
  23,464
  25,564
  27,750
  30,025
  32,391
  34,849
Funds from operations, $m
  1,298
  2,161
  3,927
  6,416
  9,809
  14,297
  20,074
  27,326
  36,225
  46,922
  59,542
  74,145
  90,872
  109,725
  130,719
  153,846
  179,080
  206,385
  235,717
  267,028
  300,271
  335,403
  372,387
  411,197
  451,815
  494,236
  538,466
  584,525
  632,445
  682,269
  734,054
Change in working capital, $m
  -52
  547
  796
  1,117
  1,521
  2,011
  2,588
  3,249
  3,989
  4,797
  5,663
  6,574
  7,516
  8,476
  9,444
  10,409
  11,363
  12,301
  13,219
  14,116
  14,991
  15,847
  16,686
  17,513
  18,332
  19,148
  19,966
  20,793
  21,634
  22,494
  23,380
Cash from operations, $m
  1,350
  1,613
  3,132
  5,299
  8,288
  12,287
  17,487
  24,077
  32,236
  42,124
  53,879
  67,571
  83,356
  101,249
  121,275
  143,437
  167,717
  194,084
  222,498
  252,912
  285,280
  319,556
  355,701
  393,684
  433,483
  475,088
  518,500
  563,732
  610,811
  659,775
  710,674
Maintenance CAPEX, $m
  0
  -96
  -154
  -237
  -355
  -515
  -726
  -998
  -1,340
  -1,759
  -2,264
  -2,859
  -3,551
  -4,341
  -5,232
  -6,226
  -7,320
  -8,515
  -9,809
  -11,199
  -12,683
  -14,260
  -15,926
  -17,681
  -19,523
  -21,450
  -23,464
  -25,564
  -27,750
  -30,025
  -32,391
New CAPEX, $m
  -175
  -578
  -837
  -1,175
  -1,599
  -2,114
  -2,721
  -3,417
  -4,195
  -5,045
  -5,956
  -6,913
  -7,904
  -8,914
  -9,931
  -10,946
  -11,949
  -12,936
  -13,901
  -14,844
  -15,765
  -16,665
  -17,547
  -18,417
  -19,278
  -20,136
  -20,997
  -21,866
  -22,750
  -23,655
  -24,586
Cash from investing activities, $m
  592
  -674
  -991
  -1,412
  -1,954
  -2,629
  -3,447
  -4,415
  -5,535
  -6,804
  -8,220
  -9,772
  -11,455
  -13,255
  -15,163
  -17,172
  -19,269
  -21,451
  -23,710
  -26,043
  -28,448
  -30,925
  -33,473
  -36,098
  -38,801
  -41,586
  -44,461
  -47,430
  -50,500
  -53,680
  -56,977
Free cash flow, $m
  1,942
  940
  2,142
  3,886
  6,334
  9,658
  14,039
  19,662
  26,702
  35,320
  45,659
  57,798
  71,902
  87,994
  106,112
  126,265
  148,447
  172,634
  198,788
  226,870
  256,832
  288,631
  322,227
  357,586
  394,683
  433,502
  474,040
  516,303
  560,311
  606,094
  653,697
Issuance/(repayment) of debt, $m
  1,887
  3,253
  4,727
  6,640
  9,038
  11,947
  15,375
  19,306
  23,701
  28,506
  33,652
  39,062
  44,659
  50,366
  56,116
  61,849
  67,519
  73,092
  78,548
  83,876
  89,078
  94,163
  99,151
  104,063
  108,928
  113,776
  118,639
  123,552
  128,549
  133,661
  138,924
Issuance/(repurchase) of shares, $m
  -155
  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  
  1,786
  3,253
  4,727
  6,640
  9,038
  11,947
  15,375
  19,306
  23,701
  28,506
  33,652
  39,062
  44,659
  50,366
  56,116
  61,849
  67,519
  73,092
  78,548
  83,876
  89,078
  94,163
  99,151
  104,063
  108,928
  113,776
  118,639
  123,552
  128,549
  133,661
  138,924
Total cash flow (excl. dividends), $m
  3,728
  4,192
  6,869
  10,527
  15,372
  21,605
  29,415
  38,968
  50,403
  63,826
  79,311
  96,861
  116,561
  138,361
  162,227
  188,114
  215,966
  245,726
  277,336
  310,745
  345,910
  382,795
  421,378
  461,649
  503,610
  547,278
  592,679
  639,855
  688,859
  739,756
  792,621
Retained Cash Flow (-), $m
  -792
  -1,242
  -1,811
  -2,544
  -3,463
  -4,577
  -5,891
  -7,397
  -9,080
  -10,921
  -12,893
  -14,966
  -17,110
  -19,297
  -21,499
  -23,696
  -25,868
  -28,004
  -30,094
  -32,135
  -34,128
  -36,076
  -37,987
  -39,869
  -41,733
  -43,590
  -45,454
  -47,336
  -49,250
  -51,209
  -53,225
Prev. year cash balance distribution, $m
 
  3,814
  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
 
  6,764
  5,058
  7,983
  11,909
  17,028
  23,524
  31,571
  41,322
  52,905
  66,418
  81,895
  99,451
  119,064
  140,728
  164,418
  190,098
  217,722
  247,243
  278,610
  311,782
  346,718
  383,391
  421,780
  461,877
  503,687
  547,225
  592,519
  639,609
  688,547
  739,396
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
 
  6,485
  4,630
  6,947
  9,806
  13,199
  17,072
  21,329
  25,827
  30,391
  34,821
  38,891
  42,439
  45,270
  47,245
  48,270
  48,308
  47,373
  45,532
  42,898
  39,618
  35,862
  31,811
  27,644
  23,524
  19,594
  15,965
  12,717
  9,896
  7,516
  5,567
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 designs, manufactures, markets, refurbishes, and services semiconductor processing systems used in the fabrication of integrated circuits. It provides thin film deposition products, including SABRE electrochemical deposition products for copper damascene manufacturing; ALTUS systems to deposit conformal atomic layer films for tungsten metallization applications; VECTOR plasma-enhanced chemical vapor deposition (CVD) and atomic layer deposition systems to deposit oxides, nitrides, carbides, multiple patterning films, anti-reflective layers, multi-layer stack films, and diffusion barriers; SPEED high-density plasma CVD products for applications in shallow trench isolation, pre-metal dielectrics, inter-layer dielectrics, inter-metal dielectrics, and passivation layers; and SOLA ultraviolet thermal processing products for the treatment of back-end-of-line low-k dielectric films and front-end-of-line silicon nitride strained films. The company also offers plasma etch products, such as Kiyo products that provide solutions for conductor etch applications; Flex products, which offer technologies and application-focused capabilities for dielectric etch applications; and Syndion products that provide solutions to address various through-silicon via etch applications. In addition, it provides single-wafer clean products, including EOS, Da Vinci, DV-Prime, and SP series products for wet etch and clean applications in wafer-level packaging, including silicon substrate thinning, wafer stress relief, underbump metallization etch, and photoresist removal; and Coronus plasma-based bevel clean products to enhance die yield by removing particles, residues, and unwanted films from the waferÂ’s edge, as well as legacy products. The company offers its products in the United States, Europe, Taiwan, Korea, Japan, China, and Southeast Asia. Lam Research Corporation was founded in 1980 and is headquartered in Fremont, California.

FINANCIAL RATIOS  of  Lam Research (LRCX)

Valuation Ratios
P/E Ratio 28.7
Price to Sales 4.5
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 19.4
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 11.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.6%
Cap. Spend. - 3 Yr. Gr. Rate 1.7%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 60.8%
Total Debt to Equity 76.9%
Interest Coverage 17
Management Effectiveness
Return On Assets 9%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.8%
Return On Equity 16.6%
Return On Equity - 3 Yr. Avg. 14.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 44.5%
Gross Margin - 3 Yr. Avg. 43.8%
EBITDA Margin 22.3%
EBITDA Margin - 3 Yr. Avg. 21.6%
Operating Margin 18.2%
Oper. Margin - 3 Yr. Avg. 16%
Pre-Tax Margin 16.3%
Pre-Tax Margin - 3 Yr. Avg. 15.4%
Net Profit Margin 15.5%
Net Profit Margin - 3 Yr. Avg. 13.9%
Effective Tax Rate 4.8%
Eff/ Tax Rate - 3 Yr. Avg. 9.6%
Payout Ratio 20.8%

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 $5886 million for the last fiscal year's total revenue generated by Lam Research. The default revenue input number comes from 2016 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 60% 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 54.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1651 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 16.3%.

Life of production assets of 10 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 15.5%. 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 - $5895 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 161.862 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 $26.5 billion.

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COMPANY NEWS

▶ These 5 Top Chip Plays Are Near Buy Zones   [Jul-23-17 10:10AM  Investor's Business Daily]
▶ ETFs with exposure to Lam Research Corp. : July 14, 2017   [Jul-14-17 03:26PM  Capital Cube]
▶ Why LAM Research Stock Will Continue Its Bull Run   [Jul-11-17 09:44AM  Investopedia]
▶ Why Wall Street mistrusts the bull market   [Jul-10-17 07:40PM  CNBC Videos]
▶ Two Chip-Gear Stocks Soar On Bullish Report Ahead Of Big Conference   [Jul-07-17 04:44PM  Investor's Business Daily]
▶ 7 Stocks to Buy Before Their Earnings Breakout   [Jul-06-17 09:30AM  InvestorPlace]
▶ Could These Chip-Gear Stocks Start To Rally After Recent Slide?   [Jun-30-17 12:30PM  Investor's Business Daily]
▶ Why you should sell this hot group of stocks: Technician   [Jun-28-17 05:29PM  CNBC Videos]
▶ Apple, Chips Lead Stocks Down; Are These 4 Tech Leaders Issuing A 'Sell'?   [Jun-27-17 04:50PM  Investor's Business Daily]
▶ Stocks To Buy And Watch: Top IPOs, Big And Small Caps, Growth Stocks   [Jun-20-17 04:38PM  Investor's Business Daily]
▶ Stocks Up; Why Apple, Microsoft Can Beat The S&P 500 In 2017   [Jun-19-17 03:07PM  Investor's Business Daily]
▶ Two Chip Gear Makers Earn Price-Target Hikes In Hot Semiconductor Market   [Jun-16-17 04:27PM  Investor's Business Daily]
▶ Chip Stocks To Watch And Semiconductor Industry News   [01:40PM  Investor's Business Daily]
▶ 3 Strong Buy Growth Stocks   [Jun-14-17 05:01PM  Zacks]
▶ Stocks to Watch: Apple, Netflix, Amazon, Tesla, Nvidia   [09:31AM  The Wall Street Journal]
▶ More Questions Than Answers on Lam Research   [Jun-12-17 02:00PM  TheStreet.com]
▶ [$$] Lam Research Could Rise 20% in the Next Year   [Jun-10-17 12:59AM  Barrons.com]
▶ A Super Semiconductor ETF   [Jun-09-17 11:55AM  Investopedia]
▶ These are the 9 highest-paid Bay Area tech execs outside of Silicon Valley   [Jun-08-17 05:40PM  American City Business Journals]
▶ Lam Research Longs: Go Ahead, 'Scratch That Itch'   [May-30-17 03:39PM  TheStreet.com]
▶ Analyzing Applied Materials Stock Price Trend   [10:35AM  Market Realist]
▶ Is Applied Materials High Cash Flow Here to Stay?   [May-29-17 10:36AM  Market Realist]
▶ Whats the Secret behind Applied Materials Earnings Growth?   [May-26-17 07:36AM  Market Realist]
▶ How Applied Materials Plans to Improve Its Profits   [May-25-17 10:37AM  Market Realist]
▶ Soros Upends Portfolio, Makes Big Bets on Info Tech   [May-22-17 04:59PM  Investopedia]
▶ Lam Research Looks Higher for Weeks to Come   [May-19-17 04:36PM  TheStreet.com]
▶ Lam Research Is on the Run Higher   [03:13PM  TheStreet.com]
▶ Chip Gear Makers Get Price-Target Hikes; AMD Lifted By Intel Deal   [May-16-17 04:38PM  Investor's Business Daily]
▶ Lam Research Corporation Declares Quarterly Dividend   [May-12-17 04:05PM  GlobeNewswire]
▶ ETFs with exposure to Lam Research Corp. : May 8, 2017   [May-08-17 04:51PM  Capital Cube]
▶ AMD Rating Cut; KLA-Tencor Gets Price-Target Increase   [May-02-17 04:25PM  Investor's Business Daily]
▶ ETF Flyer: Paul Wick's Picks Gave PSI a Lift   [May-01-17 05:31PM  Barrons.com]
▶ Is Lam Research (LRCX) a Great Growth Stock?   [Apr-28-17 08:58AM  Zacks]
▶ 3 Best Performing Stocks of April   [09:04AM  Motley Fool]
▶ Tech Roundup: NFLX, IBM, LRCX, EBAY, FB   [Apr-26-17 05:00PM  Zacks]
▶ Stocks Surging on the Big Breakout   [Apr-25-17 12:35PM  Zacks]
▶ Nasdaq hits intraday record   [Apr-24-17 03:48PM  CNBC Videos]
▶ [$$] Semiconductor Gear: Still Some Chips to Play   [12:03AM  The Wall Street Journal]
▶ [$$] Semiconductor Gear: Still Some Chips to Play   [Apr-23-17 02:10PM  The Wall Street Journal]
Stock chart of LRCX Financial statements of LRCX Annual reports 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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