Lam Research Inc. (LRCX) stock has been on a tear, but that has also raised LTCX put option premiums. An investor can short an out-of-the-money put (17% lower strike price) for a 6% yield over 2 months.
LRCX rose over 5.2% on Monday, June 22, closing at $409.54. Moreover, in the last two weeks, since June 5, the stock is up 35% from a recent trough of $303.28.
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I discussed Lam Research's underlying value in a June 16 Barchart article, "Unusual Put Options Activity in Lam Research Stock Highlights Its Value."
I showed that LRCX could be worth at least $478 per share, based on its strong free cash flow (FCF). That is still 16.7% higher, even after Monday's rise.
This was based on FY 27 revenue estimates (for the year ending June 30, 2027) of $30.54 billion, a 25% FCF margin, and a FCF yield of almost 1.3% (1.288%). Here is how that works:
$7.635b / 0.01288 = $591.9 billion fair market value (FMV)
Since then, analysts have raised their revenue forecast to $30.6 billion, so the new FMV result will be slightly higher:
Price Targets for LRCX Stock
That is +16.0% higher than its present $512.16 billion market cap, as of June 21. In other words, LRCX's price target (PT) is 16% higher:
$409.54 price on June 21 x 1.16 = $475.07 per share
The bottom line is that LRCX stock could still move higher. Moreover, if the market decides to raise the valuation metric to say 1.25%, the FMV would be $100 billion from its existing $512b market value:
That $100 increase represents a 19.53% potential upside in LRCX stock to almost $490 per share:
$409.54 price x 1.1953 = $489.52 price target (PT)
Other analysts are playing catch-up, although they are raising their PTs. For example, Yahoo! Finance says the average of 35 analysts is $335.74. That's up from $323.38 a week ago, as seen in my June 16 Barchart article. Similarly, Barchart's PT is now $336.63, up from $325.60. I suspect Wall Street analysts will keep playing catch-up, as LRCX rises.
However, there is no guarantee this will occur. One way to play LRCX is to sell short deep out-of-the-money (OTM) puts, given their high premiums.