Credit Suisse Reinstates Broadcom, Sees Strong Upside Against Backdrop Of 'Lackluster' Semiconductor Sector

• Broadcom Limited AVGO shares have appreciated 3.44 percent over the past one month, while rising more than 2 percent in morning trade on February 16.
• John W. Pitzer of Credit Suisse has reinitiated coverage of the company with an Outperform rating and price target of $160.
• Pitzer believes that there is potential for robust upside against a backdrop of a “lackluster” semiconductor sector, especially during 1H16.

Analyst John Pitzer expects the upside to be driven by post-merger cost synergies of at least $750 million, above target long term revenue CAGR of 6-8 percent, and in-line P/E multiple.

According to the Credit Suisse report, “The combination of Avago and Broadcom creates the third largest pure-play semiconductor company… with ~$15bn in Revenue or approximately 4.5 percent of total Semi Rev in CY15.”

Pitzer also noted that the combined entity had the 10th largest market cap in the Technology sector, with market capitalization of about $60 billion.

Credit Suisse’s analysis indicates long term EPS of at least $12.75 at a revenue CAGR Of 5 percent, along with the divesture of the Connectivity business and operating margin of 40 percent.

The EPS could be as high as $15 at a revenue CAGR of 8 percent, with no divestitures and operating margin at 40 percent.

“In addition, we see upside from additional M&A of as much as $0.85 to $0.95,” Pitzer added.