Can Avago Technologies Ride The Apple Supplier Wave?
Avago Technologies Ltd (NASDAQ: AVGO) closed up more than 7 percent Wednesday and jumped another 2 percent in after hours trading, but the company’s future might be hindered by its limited exposure to Apple Inc. (NASDAQ: AAPL).
Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga that he believes Avago is more diversified than Qorvo Inc (NASDAQ: QRVO), Cirrus Logic, Inc. (NASDAQ: CRUS) and Skyworks Solutions Inc (NASDAQ: SWKS). This could work in Avago’s favor if Apple and Google Inc (NASDAQ: GOOG) continue to fluctuate.
If Apple dominates the smartphone business, however, diversified suppliers may not perform as well as those who focus their efforts on Apple.
“I used to trade Avago when it was a $30 to $40 stock,” said Udall. “I like it to a point. I wasn’t as close to the name as some other names, like Skyworks, which I was really bullish on for the better part of a couple years.”
Udall said it is “possible” that Avago has “20 to 25 percent exposure to Apple,” but he thinks it is a “little bit lower.”
“In general, their smartphone exposure is a little lower than some of these smartphone stocks,” Udall explained. “None of these guys say [they supply for] Apple. They all say ‘high-end smartphones’ or ‘North American exposure.’ But Avago is a little harder to read.”
Avago reported a Q2 EPS of $2.24 versus the Street estimate of $2.14. Sales arrived at $1.735 billion versus $1.74 billion.
“Their quarter was pretty good,” Udall added. “I think they guided pretty strongly last quarter. Here’s how I would read this: the fact that everybody thought the world was ending and everybody thinks the Chinese market is this huge detriment…the fact that Avago just guided in-line sort of says that business is probably pretty good.”
That said, Udall doesn’t believe Avago’s rise has anything to do with earnings.
“The stock has come from $150 to $100,” he said. “Once a stock, even an expensive stock, drops 50 points (or 35 percent), it’s just not as expensive anymore. I think the stock was up today because it got hit so hard. The stock’s not up a ton after hours. I think people were hoping for more, because Avago has reported some hellacious beats in the past.”
Global Equities Research analyst Trip Chowdhry told Benzinga that investors may have “overcorrected” Avago.
“It seems like the pessimism that investors may have felt on Apple and its suppliers is not that serious at all,” said Chowdhry. “If you look at Avago, they just missed [sales], it’s not that serious. The impact from China is less severe than many people have been assuming. I think. Based on the numbers Avago put in, it could recover the decline in value.”
Chowdhry said the company might recover in the next 90 days.
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
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