Brean Capital Raises Broadcom Price Target Following Earnings

Brean Capital believes Broadcom Ltd AVGO is poised for above-average growth with industry leading profitability at a cheap valuation as it reiterated its Buy rating on the stock.

Broadcom reported another impressive quarter as it positioned itself in some of the strongest and fast growing end markets in the semiconductor industry such as data center/networking and wireless.

"[M]ore importantly, AVGO demonstrated how this strategy is paying off in leverage in the financial model of the combined company as EPS is "out growing" revenue on a sequential basis by2x at least for the Jul-16Q and Oct-16Q," analyst Mike Burton wrote in a note.

Related Link: A Solid Beat And Raise Quarter For Broadcom Led By Wireless Segment

The company reported third quarter revenues $3.802 billion versus Street consensus of $3.756 billion, and was higher than the company's original guidance of $3.75 billion. EPS of $2.89 came in 4 percent above the Street consensus of $2.77.

Looking ahead, Broadcom guided to October quarter revenue of $4.1 billion at the mid-point, 1 percent above the Street at $4.06 billion. Gross margin was guided up 10bp to 60.5 percent, 30bp above the Street at 60.2 percent. Implied EPS for the October quarter is $3.34 at the mid-point, 5 percent or $0.15 above the Street at $3.19. On the cost side, Broadcom sees flat opex trends.

The company expects its wireless communications segment to grow sequentially more than 30 percent as the company expects a full quarter of its ramp at Apple. The company is expecting seasonality to spur growth in its Enterprise Storage business and sees growth of "low single digits" quarter-over-quarter.

The analyst raised his full-year non-GAAP revenue and EPS estimate to $13.25 billion/$11.18 from $13.22 billion/$10.91. The Street was expecting revenue and EPS of $13.155 billion and $10.95, respectively.

Burton also raised the price target by $5 to $205, while the stock is currently down 2.43 percent to $172.78.

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