Broadcom: Expect Softening Performance Metrics In 2015, But Company Is Still Well Positioned In The Market

In a report issued Friday, Tigress Financial's Chief Investment Officer Ivan Feinseth downgraded shares of Broadcom Corporation (NASDAQ: BRCM) from Strong Buy to Buy.

He explained that, while the company is "in a great position to benefit from the expansion of China's LTE network and increasing adoption of wearable technology among other trends," the firm sees weakness in the connectivity business making of 2015 a more challenging year than 2014.

Two main points are highlighted in the report:

"Performance metrics are expected to moderate further in 2015." The company's revenue growth rate fell from 5.1 percent in 2013, to 2.5 percent in 2014; the firm is expecting flat sales in 2015 on the back of a sluggish connectivity business. The analysts also expect margins to come under pressure over 2015 and are projecting EBITDAR margin to drop from 48.7 percent in 2014 to 46.9 percent in 2015. Moreover, they see Broadcom's NOPAT margin declining from 14.3 percent to 11.1 percent.

"BRCM continues to be a strategically important supplier to its customer base." Even in spite of Tigress Financial's anticipation of worsening performance, the company's position remains strong. "The rollout of China's LTE network via the joint efforts by the country's largest telecom companies China Mobile, China Unicom and China Telecom is largely dependent on equipment from BRCM and we [the analysts] believe this will be a tailwind for the company as that build out progresses. BRCM also remains an important supplier to Apple (AAPL-US, Strong Buy) and is benefiting from the continued strong uptake of that company's products."