Market Overview

Broadcom-Avago...The Day After


Broadcom Corporation (NASDAQ: BRCM) soared over 20 percent Wednesday following news its would be acquired by Avago Technologies Ltd (NASDAQ: AVGO) in a $37 billion dollar deal; the deal was confirmed Thursday morning.

On Thursday, Avago traded at $140.30, down 0.84 percent while Broadcom fell 2.5 percent to $55.71.

Analysts were quick to weigh in on the deal. Below are highlights along with current ratings and price targets.

Jefferies analyst Mark Lipacis - Hold on Avago, $125 price target

“Assuming $60-$70 per share (30%-50% premium to BRCM's previous close), 50%-100% equity financing, no revenue synergies and cost synergies equal to ~8% of BRCM sales (consistent with cost synergies projected for the AVGO +LSI and NXPI+FSL deals), we estimate that a deal could be $1-to-$3 accretive to AVGO EPS. Potential for Revenue Synergies: We view BRCM and AVGO revenue mix as being largely complementary, with the potential for revenue synergies in Wireless (AVGO Power Amps and Filters with BRCM's Connectivity), and in Wired (AVGO SerDes ASICs with BRCM Networking).”

UBS analyst Stephen Chin - Buy on Avago, $138 price target

Chin believed “the key positives for Avago could include: 1) EPS accretion by up to 11% in CY2016, 2) sales synergies from complementary products in wireless (Avago RF filters, power amps vs Broadcom connectivity) and networking (ASICs, fibre optics vs switching and small cell chipsets, optical PHY components), 3) increased scale could lead to lower wafer costs/COGS and SG&A, 4) adds valuable networking and wireless IP as well as CMOS logic capabilities for future RF front end modules (FEM).”

Wedbush analyst Betsy Van Hees - Outperform on Broadcom, $61 price target

“We view the potential merger as a considerable positive for BRCM shareholders, but negative for BRCM employees as we believe there are significant cost synergies given its fabless model. On a standalone basis, we continue to believe BRCM’s current restructuring cost savings from exiting of the baseband business and better product mix will be the key drivers to continued outperformance in earnings growth into 2016, bolstered by BRCM’s commitment to drive shareholder value through extensive buybacks (plans to repurchase $1B shares in 2015) and dividends.”

Pacific Crest analyst John Vinh - Overweight on Avago, $135 price target; Sector Weight on Broadcom, no price target

“Given consternation over weakness in storage, which accounts for 30% of AVGO's revenue, we believe the acquisition of BRCM would be timely and a strategic fit for AVGO, particularly in the area of networking. We estimate BRCM would add $1.56 to our C2016 EPS estimate of $8.93, which would imply fair value of $160 for AVGO. We assume a takeout price of $60 for BRCM and divestiture of the connectivity business. We view a potential acquisition as positive for AVGO and core to our Overweight thesis.”

Bernstein analyst Craig A. Ellis - Buy on Broadcom, $60 price target

Ellis felt the deal was “sound strategically” with “limited market concentration” and EPS accretion at a price of $60 to $65. Intel Corporation (NASDAQ: INTC) might also be interested in Broadcom as it would add 2.5x to the sales potential of Altera Corporation (NASDAQ: ALTR).

Summit Research analyst Srini Sundararajan - no rating

"The stellar execution of the integration of AVGO’s acquisition of LSI and Emulex suggests that a potential AVGO-BRCM merger has a fair shot of succeeding. However, we do realize that this is an order of magnitude bigger acquisition than either of the two mentioned above. In addition, we believe that Intel (HOLD, P.T. $30) has been somewhat interested but gun-shy in buying BRCM, but, who knows, now, things may be different since the BRCM-AVGO deal has been announced. And, though there seem very few overlaps at first glance, competitors might discover some and then the deal consummation could take longer."

Latest Ratings for BRCM

Jan 2016BernsteinDowngradesOutperformMarket Perform
Oct 2015B. Riley FBRDowngradesBuyNeutral
Aug 2015WedbushDowngradesOutperformNeutral

View More Analyst Ratings for BRCM
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Posted-In: Bernstein Betsy Van Hees Craig A. Ellis Jefferies John VinhAnalyst Color Analyst Ratings Trading Ideas

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