Broadcom Upgraded to Outperform - Analyst Blog

On Jan 15, 2014, we have upgraded our long-term recommendation on Broadcom Corp. (BRCM) from Neutral to Outperform as we expect it to perform well above the broader market.

The company is well positioned in the fast-growing wired and wireless communications markets, with cutting-edge solutions for an increased number of connected users that require more content and bandwidth. Broadcom's strong product portfolio, solid financial performance and healthy cash flow generation remain growth drivers.

Why Outperform?

Broadcom is focused on the most innovative technologies related to connectivity, bandwidth and content, which enables it to capture a sizeable market share. Global adoption of high-definition pay TV services and increasing consumer preference for HD content and Internet access services, especially in China and India, provide significant opportunity for growth.

Broadcom continues to drive innovation and engineering excellence across a broad range of communication end markets to help its customers enhance device performance, cut down costs, and improve the overall power efficiency. The company has a strong product portfolio and continues to benefit from market share gains as service providers increasingly deploy high-end devices.

Recently, the company revised its earnings guidance for fourth quarter. The company expects total revenue to be in the range of $2.0 billion to $2.05 billion in fourth quarter 2013, up from around $1.975 billion expected earlier. The earnings estimates have also increased factoring bullish guidance. The company intends to work diligently to deliver healthy LTE (Long Term Evolution) revenues in early 2014, while focusing on data center innovation and next generation home video products with HEVC (High Efficiency Video Coding).

However, we remain concerned about the pressure on margins with the introduction of new products and integration costs related to new acquisitions. Operating expenses continue to increase following increased R&D spending. Consequently, over the last 30 days, the Zacks Consensus Estimate for 2013 and 2014 has remained constant at $1.84 per share and $1.68 per share, respectively.

Other Stocks to Consider

Broadcom currently has a Zacks Rank #1 (Strong Buy). Other stocks that look promising in the industry include Marvell Technology Group Ltd  (MRVL) carrying a Zacks Rank #1 (Strong Buy), Amtech Systems Inc. (ASYS) and Comtech Telecommunications Corp.  (CMTL), both carrying a Zacks Rank #2 (Buy).