Susquehanna Upbeat On Avago, Sees Growth Through M&A And Broadcom Buy

• The share price of Avago Technologies Ltd AVGO has appreciated 30.85 percent year to date, from a low $96.25 on January 6.
• Susquehanna’s Chris Caso has initiated coverage of the company with a Positive rating and price target of $160.
• While expressing optimism regarding the company’s strategy to grow profits through M&A, Caso stated that the pending acquisition of Broadcom Corporation BRCM could add to the growth.

Analyst Chris Caso also expressed optimism regarding Avago Technologies’ Apple Inc. AAPL business, “due to the fact they are supply constrained.”

“However, due to EPS accretion as the acquisitions are integrated and from further growth in wireless, we feel the longer-term earnings power is so compelling that we are going to wish to own the stock no matter what happens to numbers after the upcoming call,” Caso elaborated.

Caso believes that Avago Technologies has EPS power of about $12, following the realization of the merger synergies. At the current stock valuation, this is likely to offer adequate protection against any near term industry weakness, while offering significant upside “if things go as planned.”

According to the Susquehanna report, “The success of AVGO’s proprietary FBAR technology has kept the company in a state of shortage with respect to their wireless market for the last two years.”

The company was very successful with the iPhone 6, with content doubling year on year, which in turn absorbed all of the company’s spare capacity. Avago Technologies intends to 50 percent to its FBAR filter capacity in 2016, which Caso believes could be intended for iPhone 7.

This means that content per phone is likely to increase again in 2016, with the 50 percent capacity addition expected to lead to 15 percent year on year growth in total wireless revenue capacity.