Avago Technologies Hits 52-Week High - Analyst Blog

On Jun 6, 2014, wireless chip manufacturer Avago Technologies Limited AVGO hit a 52-week high of $72.35, before closing the trading session a notch lower at $71.63. This price level represents a lifetime high for the company.

Avago's share prices have steadily been on the uptrend, almost doubling over the past one year, recording a healthy year-over-year return of 94.5%.

Share Price Drivers

Based in Singapore, Avago makes radio frequency RF chips that are used in the Apple Inc. AAPL iPhones as well as smartphones from Samsung and other mobile-device companies. It also produces chips used in wired infrastructure and industrial markets. The company reported strong second-quarter fiscal 2014 results on May 29, which contributed to the increase in share price.

Avago's second-quarter 2014 adjusted earnings grew 39.3% over the prior-year quarter to 85 cents per share, driven by robust volume expansion and smartphone growth in China. Revenues rose 24.7% year over year to $701 million, due to strong wireless sales and healthy recovery in industrial re-sales, primarily in Europe and Japan. Adjusted income from operations increased 47.5% to $233 million backed by volume growth and cost efficiencies.

Avago is gaining from the use of its chips in Apple's iPhones, which enjoys a significant market share in the U.S. as well as strong global growth prospects. Moreover, the company is set to capitalize on China's robust growth opportunities as the Chinese market begins to deploy higher-bandwidth cell service on the LTE (long-term evolution) standard.

Last month, Avago completed the acquisition of semiconductor and software designer LSI Corporation in order to diversify its existing operations and foray into the storage chip market. The $6.6 billion strategic acquisition is expected to augment revenues, produce cost synergies, diversify product portfolio and generate economies of scale.

These synergies are expected to drive growth further as the acquisition provides Avago with a strong foothold in diverse global growth markets.

We believe that Avago's diversified product portfolio, robust revenue growth, cost saving initiatives and solid cash flow from operations render it well poised to maintain its strong growth momentum and capitalize on the expansion of its various end markets.

Estimate Revisions

The estimates have been revised upwards recently in response to the LSI acquisition and solid quarter results. Over the past month, Avago has seen four upward estimate revisions for fiscal 2014, boosting the Zacks Consensus Estimate by 9.3% to $3.29 per share. The estimate for fiscal 2015, currently at $4.51, rose 28.9% over the same time frame, helped by three estimate revisions.

Other Stocks to Consider

Avago carries a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the industry include OmniVision Technologies, Inc. OVTI and Applied Micro Circuits Corporation AMCC, both sporting the same rank as Avago.