Broadcom Has Been A 'Powerhouse'; Bernstein Starts Stock At Outperform

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.

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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 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.

Full ratings data available on Benzinga Pro.