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Morgan Stanley: Keep Buying Avago Stock

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In a report published Friday, Morgan Stanley analyst Craig Hettenbach reiterated his Overweight rating on Avago Technologies Ltd (NASDAQ: AVGO). The price target was raised from $154 to $160. The analysts expect generalist investors to find the stock very attractive, given its EPS roadmap.

The analyst believes that the company's core business remains strong, with Avago Technologies delivering significant margin expansion and above-average growth for the April quarter. In fact, the sales and EPS results beat expectations.

Avago Technologies guided to a roughly in-line top line, which is a positive, compared to the weak semiconductor results of many of the company's peers. The company also guided to gross margin improvement higher than the consensus.

"Fresh on the heels of a very successful MLSI Corp (NASDAQ: LSI) integration, we think management's target of $750mn in cost synergies is likely to prove conservative," Hettenbach said.

Following the LSI deal, Avago Technologies gained several generalist investors. The analyst believes that the interest of such investors will be "even more pronounced" following the Broadcom Corporation (NASDAQ: BRCM) deal. Avago Technologies expects this deal to be immediately accretive on closure in 1Q16.

"The company expects to achieve a run rate of $750mn in cost synergies within 18 months of closing the deal, mostly by removing overlapping supporting and engineering functions. In addition, combining the supply chains of the two companies could offer incremental savings on the COGs front, which is not included in management's initial synergy target," the Morgan Stanley report added.

Latest Ratings for AVGO

Dec 2017Credit SuisseReinstatesOutperform
Dec 2017KeyBancMaintainsOverweightOverweight
Nov 2017Canaccord GenuityMaintainsBuyBuy

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Posted-In: Craig Hettenbach Morgan Stanley VetrAnalyst Color Price Target Analyst Ratings


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