The Name's Bond: Lam Research Bond and Altman Z-Score

In a series of publications dedicated to bonds in our portfolio we continue explaining how and why we select them. In the previous publication, we discussed credit ratings using the example of Oceaneering International, Inc., an engineering products and services company.

Today, we’ll explain the Altman Z-Score and why it’s important, using Lam Research bonds as an example.

What is the Altman Z-Score?

The Altman Z-Score is a model designed to predict a company’s bankruptcy risk over the next few years. It’s calculated using a formula that factors in profitability, leverage, liquidity, solvency and activity.

A high Altman Z-Score indicates a company’s stability, while a low score points to an elevated risk of bankruptcy. A score above 3 suggests solid financial health, while a score near or below zero indicates a high likelihood of bankruptcy.

The Altman Z-Score is an essential part of our bond analysis. It’s an important indicator of an issuer’s stability that cannot be overlooked.

Lam Research Corp

• Issuer: LAM RESEARCH CORP

Founded in 1980, Lam Research Corp is a global supplier of innovative equipment and services for semiconductor wafer manufacturing. Its clients include some of the world’s largest chip manufacturers, such as Micron Technology and Samsung Electronics. Over 90% of Lam’s revenue comes from clients outside the U.S.

• ISIN: US512807AU29
• Rank: Senior Unsecured
• Coupon: 4%, Fixed
• Yield to Maturity: 4.77% annually
• Altman Z-Score: 10.1
• S&P Global Ratings: A-, Stable Outlook
• Moody’s: A2
• Net Profit Margin: 26.02%
• Debt-to-Equity Ratio (D/E): 58.8%
• Minimum Entry Amount: 200 000 USD

Conclusion:

An Altman Z-Score of 10.1 indicates virtually no risk of bankruptcy within the next few years. Credit ratings of A- and A2 from S&P, Moody’s highlight the company’s high financial stability. Lam Research also boasts a strong net profit margin and moderate debt load, with a D/E (Debt to Equity) ratio of approximately 0.59 (or 58.8%).

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