Broadcom Has Been A 'Powerhouse'; Bernstein Starts Stock At Outperform
Bernstein has started coverage of Broadcom Ltd (NASDAQ: AVGO) with an Outperform Rating and $215 target, implying potential upside of 27 percent.
When Avago acquired Broadcom, the former took the name of the latter. "[T]he current company, by any name, has been a powerhouse, growing revenue by 9x, EPS by 18x, and free cash flow by 31x, driving >10x stock price appreciation over the period," analyst Stacy Rasgon wrote in a note.
The company's core wired infrastructure business is solid in addition to favorable secular trends enhancing their strong positioning in RF business. In addition, the company has a track record of improving margins and beating expectations.
Rasgon believes the Broadcom acquisition should significantly increase free cash flow generation. The company is expected to generate free cash flow of more than $6 billion annually, much more than in the past.
The company can use this excess cash for accretive acquisitions, reducing debt and enhancing shareholder returns, thereby providing a catalyst for multiple expansion and double-digit EPS growth.
Moreover, the analyst expects the combined company to have higher operating and FCF margins than Texas Instruments Incorporated (NASDAQ: TXN), with greater growth potential.
"With a history of beating expectations, likely best-in-class margins and FCF generation, and >$15 in earnings power in the next 18 months current valuation (13x P/FE) appears compelling, and set to increase, providing potential for significant upside," Rasgon highlighted.
Shares of Broadcom closed Tuesday's trading session at $169.05. At last check on Wednesday morning, Broadcom was up 1.61 percent at $171.78.
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