Ticker Reports for October 26th
Lam Research Proves Analysts Wrong with a Strong Earnings Report
In the week heading into the first quarter earnings report for its 2025 fiscal year (FY), Lam Research Corp. (NASDAQ: LRCX) stock was down nearly 15%. Furthermore, analysts were lowering their price targets for LRCX stock over concerns of slowing growth that would make it difficult to see the stock outperforming the market.
However, the stock is reversing course with a gain of over 4% in early trading the morning after the company’s earnings report. Is this a temporary lift or a sign that Lam Research may be proving its naysayers wrong?
Before reviewing what came out of the earnings report, it’s important to get a sense of what the company does and why that’s significant for investors. Semiconductors have been a volatile sector in the last four years, mostly to the upside. That’s because this is a sector that provides the “picks and shovels” that allow companies to build out their artificial intelligence (AI) infrastructure.
Lam Research in turn makes wafer-fabrication equipment and related services that the chipmakers need. In a world where more chips are needed in smaller spaces, Lam’s etch and deposition machines allow chips to be stacked vertically.
A Bullish Reversal May Be in Play
Analysts aren’t necessarily bearish on LRCX stock. Heading into earnings, the consensus price target for the stock was $141.28. That suggested an increase of over 90% in 12 months. And it comes after the company completed a 10-for-1 stock split in October.
But the concerns weren’t without some merit. Prior to the fourth quarter of FY2024, Lam Research had delivered several quarters in which revenue and earnings came in lower year over year (YOY). This makes sense when you consider where the company is in the semiconductor chain.
Many chipmakers were forecasting slower growth. If companies need fewer picks and shovels, those companies will need fewer handles and spades.
However, the trend shifted in the fourth quarter of FY 2024. This came at a time when many chipmakers started to upgrade their internal forecasts. But as investors know, one time doesn’t make a pattern. That's why it’s significant that this is now two consecutive quarters where Lam Research delivered a YOY beat on revenue and earnings.
Artificial Intelligence Continues to Provide a Tailwind
The headline numbers in the company’s earnings report showed topline revenue of $4.17 billion, higher than the $4.06 billion that analysts were expecting. On the bottom line, Lam delivered earnings per share (EPS) of 86 cents, above expectations of 81 cents.
Although the company won’t offer full-year guidance until next quarter. It did project its second-quarter revenue to be $4.3 billion, which is higher than the current forecast for $4.22 billion. The company is forecasting EPS of 87 cents, which is above estimates for 85 cents.
And according to Lam Research’s president and chief executive officer, Timothy Archer, it’s demand for AI applications that will continue fueling this growth. Although not giving specific numbers, the company sees strong growth in leading-edge logic nodes (NAND) as well as areas such as high-bandwidth memory (HBM).
LRCX Stock May Have Confirmed Support
The Lam Research analyst forecasts on MarketBeat are showing that analysts are wasting no time in doubling down on their outlook. Since the report, four analysts have lowered their price targets on LRCX stock with two of the forecasts being below the consensus price of $97.29. Supporting that price target is the company’s forward price-to-earnings ratio around 20x which puts it in the lower half of technology stocks.
However, while it may be too early to go all in on the stock, it’s important to note that the bounce after earnings may be confirming a double bottom for the stock around $72 per share. The question is whether the stock will continue to move higher. At one point in pre-market trading the stock climbed near $78 before pulling back to around $75.
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Why Meta's Pre-Earnings Dip Could Be A Golden Entry Opportunity
Meta Platforms Inc (NASDAQ: META) has been having a good year. Its ongoing rally, which kicked off around this time in 2022, is continuing to go from strength to strength and analysts are calling for even more gains ahead in the coming weeks.
With an eye-watering market cap of $1.4 trillion, the Silicon Valley giant remains one of the most dominant forces in the tech industry and one of its most closely watched stocks. There's a good reason for this: Meta shares have gained more than 500% in value over the past 2 years. Much of this has been thanks to consistently strong earnings, resilient fundamentals, and rapid adoption of its advertising and AI technologies.
Even while experiencing several corrections this year, each dip has seen the stock being rapidly bought up, pointing to sustained investor demand. Indeed, earlier this month saw, Meta shares hit yet another record high.
As we round the corner into the last few weeks of the year, investors should be excited about Meta's potential. Let's take a look.
Fundamental Performance
To start with, it's worth noting Meta's earnings performance has been the bedrock of the current rally. They've established a strong track record of consistently beating earnings expectations, while delivering year-on-year revenue growth figures north of 20%.
This makes next week's earnings report all the more exciting, with the potential for Meta to set a new quarterly record revenue print that could top last year's high of $40 billion. Expectations are high for a large upside surprise as the company has been leveraging its scale and focus on AI in recent months.
Bullish Analyst Upgrades
Backing up this fundamental momentum is the fact that analysts are overwhelmingly bullish on Meta's outlook. Just this week, the team over at Jefferies reiterated its Buy rating, building on similarly bullish stances from the likes of TD Cowen, Mizuho, and Cantor Fitzgerald earlier this month. Jefferies, in their note to clients, set a new price target of $675 on Meta stock, which points to a targeted upside of nearly 20% from current levels.
It's almost impossible to ignore the sheet weight of bullish updates from these teams that suggest Meta's growth story remains very much intact. Every Buy rating this month has come with a price target north of $600, reinforcing the belief that the stock has plenty of room to run. As we head into next week's earnings, this momentum is fueling high expectations for continued growth, especially in the context of a broader stock market that's also trading near record highs.
Potential Concerns
However, it's not all smooth sailing for Meta. In a recent update, both Scotiabank and BMO Capital Markets reiterated their Neutral ratings on the stock, highlighting some caution for investors. They both cited regulatory pressures, increased competitions and high valuation concerns as reasons for their more cautious outlooks.
The stock has also slipped around 6% from its recent highs, which could suggest some investors are taking profit and reducing their exposure ahead of next week's earnings report. It will be interesting to see how shares trade through the end of the week and into Wednesday's release.
It has to be noted though that the number of bullish analyst updates continue to easily outweigh the more cautious ones, and the overall rally remains intact.
Getting Involved
For those of us on the sidelines, the technical setup is another strong argument for considering getting involved in the near-term. The Relative Strength Index is a technical indicator that measures whether a stock is overbought or oversold, with readings above 70 suggesting a stock is overbought, and readings below 30 suggesting the opposite. With an RSI of just 46 right now, Meta's stock has a ton to move higher before it's even close to being called overbought.
If you're a believer in Meta's long-term potential and like the look of some of those analyst price targets, it's hard not to view this pre-earnings dip as an almost perfect entry opportunity. At the very least, it's a stock worth keeping high on your watchlist.
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Spirit Airlines Stock Nearly Doubled: Are Clear Skies Ahead?
Transportation stocks typically indicate the economy's current state, while airline stocks gauge the consumer cycle's direction instead. Recently, shares of Spirit Airlines Inc. (NYSE: SAVE) have nearly doubled after the company struck a new deal to help keep its debt burden flexible ahead of bond maturities in 2025.
The stock market was excited about giving the airline more breathing room. Still, is that pivot in the company's capital structure enough to keep the momentum going and give Spirit Airlines clear skies ahead? While the answer is not that clear, there is one trend and fact investors can lean on moving forward.
The risk-to-reward scale is definitely favoring the bulls and not the bears, especially considering where Spirit Airline's market capitalization sits today compared to peers like Delta Air Lines Inc. (NYSE: DAL) and even regional-focused carrier Southwest Airlines Co. (NYSE: LUV). More than that, the price today doesn't offer much upside for short sellers compared to the massive spike it can have for bulls if they land on the right side of the trade; here's how that could play out.
Could Spirit Airlines Turn into a Pain Trade for the Markets?
A pain trade occurs when too many investors are aligned on one single view, whether that’s bullish or bearish. Then, the market takes a sharp turn in the opposite direction, sending these heavy holders running for the exits all at once. When this happens, retail investors can exploit very sharp moves as long as they land on the right side.
Breaking down the pain trade in Spirit Airlines requires investors to consider a few drivers, specifically sentiment. From Wall Street, all analysts seem to be going for a bearish narrative in Spirit Airlines stock as they shoot for a consensus price target of as low as $2.5 a share.
Today’s perceived valuations by Wall Street analysts suggest that Spirit Airlines stock could see a 10% decline from where it trades at today, giving up a significant portion of its recent gains. More recently, those at Susquehanna placed their targets at an even lower $1.5 a share.
Then there’s the short interest. Short sellers increased their positions by 13% over the past month alone, increasing the risk of a potential pain trade in Spirit Airlines on a big enough catalyst. To begin measuring just how big the upside could be on this pain trade pivot, investors need to put on their banker hats.
Spirit Airlines's market capitalization is only $310 million on a comparable basis, significantly lower than the airline industry’s average size of $20.1 billion. This size discrepancy is also seen in the stock’s price-to-book (P/B) discount, as it trades at only 0.3x compared to the industry’s average of 2.2x.
Investors are facing a near 90% discount to the industry, which is one thing to lean on when considering the next giant time bomb waiting to go off for Spirit Airlines stock.
A New Buyer for Spirit Airlines: What Could the Potential Bid Be?
Surprisingly, Spirit Airlines has a new potential buyer coming from one of its regional carrier peers. Frontier Group Holdings Inc. (NASDAQ: ULCC) is now reportedly in talks with Spirit Airlines to explore a merger, and the buy price will be of the utmost importance for investors considering this pain trade today.
There isn't any news specific to price ranges regarding Frontier's offer. Still, there are a few pointers investors can keep in mind when evaluating its reality. First of all, the debt restructure that just took place, that single pivot, adds some value and quality in the form of more flexible cash flows.
Any severe buyer would consider that change. Still, there's also a discount on book value at Spirit Airlines. Were this a software or technology stock, this book value wouldn't matter much because it would mainly consist of intangibles and brand names.
For airline stocks, the book value is represented by tangible goods and agreements like aircraft and flight path rights. This is why most of the industry trades at higher P/B multiples. Frontier Group trades at 3.1x P/B, so investors could consider that Spirit Airlines' P/B could be at least 0.75x to offer Frontier an attractive buy deal.
Assuming this is true, and by all logical reason, it should be, Spirit Airlines stock could rise by at least threefold, considering the low P/B multiple today. This is not too far from reality, as bold as it sounds, considering Spirit Airlines stock trades at only 16% of its 52-week high price of $16.6 a share when the P/B was roughly 1.2x.
Few in the market agree with this bullish view, and that's where investors can gain an edge in what could turn into a pain trade: a threefold return on Spirit Airlines stock.
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