Cowen Thinks Broadcom Estimates Are 'Way Too Low,' Sees 13% Upside

Cowen reiterated its Outperform rating and sees 13 percent upside in Broadcom Ltd AVGO shares. The brokerage also attached a price target of $200 to the company. The rating and analysis were based on the firm's view that estimates remain "way too low."

The semiconductor company is expected to report its third quarter numbers on September 1. The company's earnings have topped the Street view in the past four quarters.

The brokerage sees the Street's third-quarter revenue/EPS estimate of $3.76 billion/$2.78 as "okay and biased to upside," with strength primarily driven by the wireless communications segment, which should do well with early channel fill for iPhone 7-related modules (WiFi and RFFE).

Related Link: Barclays Expects Strong Q3 Results From Broadcom

"Relative to segments we see Mobile and Wireless up 23 percent Q/Q, Enterprise Storage down 3 percent Q/Q, Wired Infrastructure up 2 percent Q/Q and Industrial & other down 4 percent Q/Q. We model debt repayment of ~$750 million but this could very well be conservative," analyst Timothy Arcuri wrote in a note.

For the fourth quarter, Arcuri models revenues/EPS (ex SBC) of $4.16 billion/$3.27, above the Street estimate of $4.05 billion/$3.17 on content gains in iPhone 7 and a full quarter of seasonality and strong wired comms.

"We see Wireless communications up 23 percent Q/Q , Enterprise storage flat Q/Q, Wired Infrastructure up 8 percent Q/Q and Industrial & Other up 2 percent Q/Q. We model another $750 million of debt repayment, but this could easily be >$1 billion,"Arcuri noted.

Expectations For Thursday

On the print, Arcuri will look for timing of Tomahawk and Jericho ramps and rollout of 25G/100G for TOR, leaf and spine in hyper-scale data centers. The analyst will also look for updates on iPhone 7 content gains in the high band RFFE module and WiFi connectivity module and F-BAR adoption in China.

"While we see this year's iPhone launch quarter as down a bit Y/Y, content gains in the high band RFFE and WiFi modules should bolster Wireless Comms, while Tomahawk and Jericho should meaningfully factor into the Oct guide with some favourable tailwinds from Enterprise Storage as well," Arcuri continued.

"We believe estimates here remain way too low and $200 still seems like a base case to us with upside from there," Arcuri added.

At the time of writing, shares of Broadcom were up 0.10 percent to $177.57.

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