Analysts Cite Broadcom's 'Choppier' Backdrop, Wireless Weakness In Neutral Takes

Notwithstanding the stock's lingering risks, the low valuation of Broadcom Inc AVGO shares has prompted two sell-side analysts to stay on the sidelines. 

The Analysts

Morgan Stanley analyst Craig Hettenbach resumed coverage of Broadcom with an Equal-weight rating and $260 price target. 

Wells Fargo Securities analyst Aaron Rakers resumed coverage of the shares with a Market Perform rating and $265 price target.

Morgan Stanley: A Near-Term 'Show Me Story'

After remaining positive on Broadcom shares for the last five years, Morgan Stanley now sees a more balanced outlook for the stock, Hettenbach said in a Wednesday note.

The analyst said lingering questions about the CA acquisition and new questions regarding its core business amid moderating end market demand are creating a "choppier than normal backdrop" for the stock.

The move into software with the CA acquisition is likely to be a "show me" story in the near-term, Hettenbach said. 

Although the analyst likes Broadcom's core franchises, he projects mounting headwinds to growth across smartphones, storage and to a lesser degree networking.

Wells Fargo Sees Near-Term Downside Risk To Forward Estimates

Broadcom could execute quickly on driving synergies from its CA buy, and there could also be a significant increase in its dividend, Rakers said in a Tuesday note.

Yet the analyst sees near-term downside risk to forward estimates ahead of fourth-quarter print Dec. 6 given the weakness in its wireless communications segment.

Apple Inc. AAPL accounts for about 65-80 percent of the wireless segment revenue, the analyst said. 

Citing weakness in the iPhone XR and Broadcom's loss of filter content in the smartphone model, Rakers estimates Broadcom's wireless communications segment revenue at $1.02 billion in the fiscal first quarter and $4.79 billion in 2019 — both below the consensus.

The Price Action

Broadcom shares have shed about 6 percent year-to-date.

The stock was down 0.47 percent at $234.73 at the time of publication Wednesday. 

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