Christmas Came Early For Broadcom Investors

Following a beat/raise quarter for Broadcom Ltd AVGO, Oppenheimer commented that Christmas has come early for investors in the shares of the company.

Stellar Fiscal Fourth Quarter, Upbeat Guidance

Analyst Rick Schafer noted that the company reported fourth-quarter revenues of $4.15 billion and earnings per share of $3.47. This was ahead of the consensus estimate. The analyst also noted that the company's fiscal fourth-quarter revenue guidance of $4.08 billion and gross margin guidance of 61.5 percent also exceeded estimates.

Among the other highlights of the earnings release, the analyst highlighted the company doubling the quarterly dividend and planning to return about 50 percent of the free cash flow through dividends long term.

The analyst indicated that wireless, accounting for 32 percent of the total revenues, saw 34 percent sequential growth. The company expects double-digit revenue growth from Apple Inc. AAPL in calendar year 2017, as mix shifts to newer devices, and 20 percent RF content growth in the iPhone 8 supported by a three-year supply agreement with Apple. Wired, accounting for 50 percent of the total revenues, and storage, accounting for 14 percent of the total revenues, saw sequential growth of 1 percent and 6 percent, respectively.

Broadcom Mispriced

Oppenheimer believes Broadcom is mispriced at less than 12 times its calendar year 2018 earnings per share estimate, given its industry leading capital return and margin profile. The firm stated that the organically growing revenues are tied to favorable long tern secular trends and additional accretion from Brocade is yet to be layered into estimates. The firm also said it is bracing for further M&A.

Oppenheimer has an Outperform rating and it raised its 12–18-month price target to $215 from $200.

At time of writing, Broadcom shares were rallying 4.57 percent to $178.51.