Avago May Be A Way To Play The Next iPhone

• Avago Technologies Ltd (NASDAQ: AVGO) gained 26.4 percent year-to-date, though the stock has come 15 percent off its 52-week high.
• JMP's Securities Alex Gauna upgraded Avago to Market Outperform with a $165 price target.
• Gauna said that expected strength in iPhone 6S and iPhone 7 will be "strong growth drivers" for Avago.

The best way to play the iPhone's strength may be with Avago, according to JMP Securities analyst Alex Gauna. Gauna argued that expectations for Avago are "muted" – the result of "misplaced concerns" on tough year-over-year comparisons, content slippage and Chinese exposure.

Related Link: Apple: 'Bigger, Faster, Stronger'

Instead, Gauna furthered the view that Avago would see "sustained" growth. He pointed not just to strength in Apple Inc. (NASDAQ: AAPL)'s iPhone 6S and iPhone 7, but to Avago's enterprise storage business. He called that segment a "positive surprise," noting that a strength in cloud computing is a powerful tailwind.

Finally, Gauna applauded Avago's "expense control" and "execution" on past acquisitions. That plays into the company's deal to acquire Broadcom Corporation (NASDAQ: BRCM), which should close this year. JMP securities said that the deal could lead to $2 in accretion as well, helping Avago's "compelling" valuation.

The new $165 price target reflects a value of 15x 2016 expected earnings of $11.