Broadcom Has Possible 45% Upside, BofA Says

In a report published Wednesday, BofA Merrill Lynch analysts maintained a Buy rating on Broadcom Corporation BRCM, with a price objective of $54.

The analysts enumerated the factors supporting a possible 45 percent valuation upside in the company's stock as:

• WiFi competitive risks appear overstated
• The company seems to be poised to lead the new 25Gig Ethernet cycle in data center with its new Tomahawk switch
• The company's competitive position in set top boxes is strengthening versus its main rival STMicroelectronics NV STM

In the report BofA Merrill Lynch noted the five reasons that the company's connectivity is "stronger than you think:"

• Best-in-class WiFi combos which is very complementary with trend towards use of discrete mobile chips in high-end smartphones being offered by companies like Samsung, Apple Inc AAPL, Xiaomi and Huawei
• Broadcom has about 1,000 dedicated engineers and, therefore, has a leading share of about 57 percent in connectivity combos (WiFi / Bluetooth / GPS / FM)
• WiFi combos cost merely $4, constituting only about 2 percent of the high-end smartphone bill of materials. While this is not meaningful enough to insource by customers, for vendor selection it is very critical since WiFi carries most of the data traffic
• By exiting baseband, Broadcom is able to partner better in Wifi with vendors it previously competed against
• "Content expansion with greater 5G WiFi/dual-band penetration, new location hub chip with incremental $2 ASP content adder and TAM expansion in Internet of Things (IoT)"