Nomura Upgrades Broadcom After Meeting With CEO

Nomura analyst Romit Sha has upgraded Broadcom Ltd AVGO shares to buy rating with the price target increased to $200 from $190. The analysts met with the company's CEO, Hock Tan, and expressed his comments on the stock.

The analyst stated, "Contrary to reports (Nikkei, Digitimes) of a tempered iPhone 7 ramp, Mr. Tan indicated that wireless should accelerate from mid-20 percent growth in the July quarter," fueling strong sequential growth in the upcoming quarter.

The analyst continued, "We believe one of the contributing drivers is that the mix of iPhones will be more skewed to iPhone 7 vs prior years, which benefits Broadcom due to their higher content in the new phone. We estimate that revenues from 3 weeks of an iPhone ramp could be ~$120–130 million, implying that Wireless could approach $1.4 billion (+40–50 percent qoq) and drive total revenues in the range of $4.1–4.3 billion, vs consensus of $4.05 billion in the October period."

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Nomura believes that the company is "understating market share gains and their ability to capture additional value in core segments." Furthermore, the brokerage stated Tan believes the company would benefit share in enterprise storage.

The brokerage sees potential share gains in broadband as ST MIcro exited STB and Wireless as capacity is added. The analysts pointed out that the management indicated that Broadcom still has potential COGS savings in spite of gross margins being at 60 percent. According to the brokerage, Tan noted that while the integration is on track, a majority of the synergies, i.e. $750 million, has yet to be realized.

"Tan is looking to acquire companies that have leadership positions in their respective markets, high gross margins and high operating expenses relative to sales," according to the analyst.

At time of writing, Broadcom was down 0.32 percent at $160.30.