Avago's Q3 Aftermath: What Top Wall Street Analysts Are Saying

• Avago Technologies Ltd AVGO reported its fourth quarter financial results on Wednesday afternoon. Earnings of $2.51 per share and revenue of $1.853 billion came in ahead of the Street’s consensus, which called for earnings of $2.38 per share and sales of $1.85 billion.
• The semiconductor maker’s shares were trading up more than 9 percent on Thursday afternoon.
• Below is a look at what some of the main Wall Street research firms said about the company after the results were out.

After an earnings and revenue beat, Avago caught the attention of several major Wall Street research firms. This is what they said:

Jefferies

Analysts led by Mark Lipacis pointed out that the third quarter results and fourth quarter outlook widely beat expectations on the earnings front, mainly on the back of better gross margins driven by high utilization.

The experts believe demand drivers for Avago’s “unique FBAR solution will keep capacity constrained even as its 8-in conversion expands FBAR capacity by 50% through 2H16.” The firm also likes the pending Broadcom Corporation BRCM acquisition, which the experts estimate gives Avago $14 in EPS power.

Consequently, the firm reiterated a Buy rating and $180 price target on the shares.

Oppenheimer

After the strong results, Oppenheimer’s Rick Schafer, Shawn Simmons and Joseph Zaccaria decided to boost their estimates and price target for Avago. “Strength in enterprise storage offset modest weakness in industrial and wired comms,” the report explained. As anticipated, iPhone 6S unit deceleration is expected to drive wireless down in the upcoming quarter, offsetting robustness in enterprise storage and wired comms. “Efforts to double FBAR capacity by mid-2016 support mgmt's bullish outlook for 20% gen/gen content gains on iPh7,” they added.

On another note, the Broadcom deal remains on track for an early 2016 close, they assured. Thus, the experts see 30 percent-plus EPS accretion in 2016 as the company integrates the new acquisition into its disciplined business model.

The firm reiterated an Outperform rating on the stock, boosting its price target to $170 from $155.

Pacific Crest

John Vinh at Pacific Crest is also bullish on Avago, and reiterated an Overweight rating and $170 price target on its stock. “Despite lowered guidance due to Apple iPhone weakness, better-than-expected gross margin and opex management resulted in limited downside to EPS,” he explicated. After expectations were reset, Vinh and his team assured they remain buyers of the stock as they look forward to the completion of the Broadcom merger and 20 percent increase in content on the iPhone 7.

Canaccord

Same as Oppenheimer, analysts at Canaccord also raised their price target on shares of Avago from $165 to $179, reiterating a Buy rating. Once again, the experts highlighted the earnings beat, strong guidance and commitment to the Broadcome acquisition. “We believe the acquisition significantly expands Avago’s TAM and creates a leading global diversified semiconductor company with a broad portfolio of category-leading products and a leading customer base addressing the wireless and wired infrastructure, enterprise & data center networking and storage, IP traffic routing, Home/IoT and Industrial verticals,” they expounded.

Brean Capital

Also aboard of the bullishness train was Brean’s Mike Burton, who reiterated a Buy rating on shares of Avago, boosting his price target by $10 to $180.

Once again highlighting the strong results and guidance, the report pointed out that the firm’s analysts like the fact that management “took the opportunity to guide Wireless conservatively” but still hit the Brean’s below-Street estimate off of strength in its other businesses.

The experts continue to like Avago due to its “above-average diversified growth, industry leading profitability, and top quality management team (not to mention its cheap valuation).”

BMO Capital Markets

“Better cost control, and higher GM leading to higher EPS, usually trump a slightly lower top line,” BMO analysts explicated. The core business is living up to expectations and the Broadcom purchase should drive strong EPS and free cash flow growth, they added, justifying their Outperform rating and $185 price target.

Susquehanna

Finally, there’s Susquehanna. Analysts Chris￿ Caso and Liz￿ Pate issued a Positive rating and $165 price target (up $5) following the earnings call. Even though the company’s revenue and revenue guidance looked weak, the experts remained constructive on the stock, “given better margins and continued opex control, the BRCM acquisition on track, and expected gains in wireless as they add capacity in 2016.”

Moreover, the experts assured they continue to think the combined company will boast earnings power above $12, once merger synergies are completely realized. This makes the valuation of the stock very compelling, they added.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.