Avago Technologies Analyst Roundup

Avago Technologies Ltd AVGO beat Q4 EPS and revenue expectations Wednesday. The stock soared over 8 percent  and recently traded at $102.20.

Below are highlights from analyst comments following the earnings announcement along with current ratings and price targets.

Brean Capital - Buy, $120 price target

“Avago reported a big beat-and-raise with the revenue upside to both quarters coming primarily from content gains in the iPhone 6/6+, but also a better-than-expected result in Enterprise Storage. While ~2/3 of the increase in our EPS for the Jan-15 Q (up $0.30) is coming from the revenue upside, the higher gross margin level is contributing the other 1/3; GMs were well above expectations at 58.3 percent in the October Q and guided to 57.5 percent vs. Street estimates of 55.7 percent. We believe the higher margin level is a result of structural changes AVGO’s has made to its operating model and is therefore sustainable. We anticipate some investors may be getting concerned that Y/Y revenues are going to ‘top’ in Jan-15 and GMs have peaked already (with which we disagree), and "we haven’t even begun to see the slowdown at Apple". We think AVGO was being conservative in its guidance and, given the earnings power of the Company, we think there is still upside to the stock.”

Jefferies - Hold, $104 price target

“We expect seasonal wireless decline in AprQ. Jefferies analyst Sundeep Bajikar expects Apple to sell 70M iPhones in DecQ and 50M in MarQ. Accordingly, we expect AVGO's Wireless sales to decline 10% QoQ in AprQ (vs. -8 percent last year) as the iPhone6 product cycle nears its peak.”

Morgan Stanley - Overweight, $110 price target

“October quarter Non-GAAP EPS of $1.99 beat by 18 percent and was 58 percent above where estimates were as recently as July - quite impressive, in our view. Revenue was $60 millon ahead of expectations, but the real driver of upside was GMs and OMs which beat by 250 and 320 bp, respectively. We continue to view increasing $ content in RF (39 percent of sales last quarter), led by the proliferation of LTE bands, as a powerful growth and margin expansion story for AVGO. Furthermore, the company's execution on the LSI acquisition (closed in May this year) has been exceptional, in our view. Our new PT of $110 is based on a 16X P/E (unchanged) CY15e EPS of $6.87 (including stock based comp).”

Citi - Buy, $110 price target

“We conservatively model wireless sales to decline 15 percent qq in the Apr-Q as AVGO’s Apple sales lead and correlate with Apple’s iPhone unit sell-thru by ~2 months. Citi hardware team models iPhone units to decline 21/17 percent qq in C1Q/2Q next year. In addition, our revised C15 gross margin expectations of 55.5 percent though above prior target model of 53-55 percent could turn out to be conservative once AVGO announces a new normalized target model. Our investment thesis assumes AVGO: a) maintains FBAR technology differentiation and $ content growth in next gen smartphones on band proliferation; b) exceeds 6-8 percent rev growth / 29-32 percent OM percent target model post LSI; and c) multiple expansion as stable enterprise storage biz offsets volatility in the wireless sales.”

Deutsche Bank - Buy, $115 price target

“AVGO once again delivered solid results in F4Q and issued a stronger F1Q guide, showcasing the better-than-expected progress in LSI and continued FBAR content story. Looking forward, we continue to believe the FBAR content story has legs, driven by proliferation of LTE and adoption of advanced features (e.g., LTE-A, envelope tracking, carrier aggregation etc.) which require greater filtering needs. Given the combination of continued FBAR momentum, LSI-bolstered strength in Wired and Storage, incremental cost cutting, and upcoming deleveraging, we maintain our Buy and raise our P/T to $115.”

Oppenheimer - Outperform, $120 price target

“Management guided F1Q (Jan.) sales up 2 percent Q/Q to $1.64B, topping the Street's $1.52B, as any potential wireless softness is offset by growth across wired, storage and industrial. Meanwhile, aggressive pruning of non-strategic assets continues to deliver meaningful GM/OM expansion, and AVGO's $200M cost reduction goal tracks ahead of schedule. Wireless cadence looks sustainable beyond F1Q (Jan.), as the adoption of high-band count, LTE smartphone remains early innings.”

D.A. Davidson - Neutral, $100 price target

“Wireless business surges 73 percent q/q in F4Q; modest decline forecasted in F1Q. Segment revenue of $628 million surpassed our expectation of $585 million, fueled by a combination of strong iPhone 6 unit growth and increasing content. Management is guiding Wireless revenue flat-to-slightly down sequentially in F1Q, as sustained high levels of business with Apple are being offset by seasonal declines at other handset OEMs. The company outlined FY’15 capex plans of $600 million, with ~1/3 to be spent in F1Q to help meet the current BAW filter (FBAR) capacity constraints. The company was hesitant to provide a qualitative outlook into F2Q (April); however, normal seasonality suggests a ~10 percent sequential decline and we have factored this into our model.”

Credit Suisse - Outperform, $125 price target

“Cash and cash equivalents increased 25.6 percent q/q to $1.60bn from $1.28bn in F3Q14 – note that the PLX acquisition used approx. $308m of cash, while the divesting of SSD products generated $450m. AVGO generated $192m of FCF (12 percent of rev), down from $219m (17 percent of rev) in F3Q as $381m in CFO (up from $314m in F3Q) was partially offset by $189m in CapEx (up from $95m). AVGO paid $81m in dividends (up from $73m in F3Q) and again did not repurchase any stock. While AVGO reiterated uses for cash in rank order (1) internal capital needs, (2) dividend, (3) debt repayment, and (4) repurchases, AVGO expects NT cash from divestitures to go towards CapEx – specifically expanding FBAR capacity to address market demand.”