Broadcom Strong Despite A Weak Apple

Broadcom Ltd AVGO announced its first quarterly results after the Avago merger, reporting a beat and raising guidance. Barclays’ Blayne Curtis maintained an Overweight rating for the company, while raising the price target from $170 to $185. The analyst said that the company continued to be among the favorite names in the group.

Results And Guidance

Broadcom reported its 1Q revenue at $3.56 billion, marginally ahead of the Street expectation of $3.55 billion. Although wireless was impacted by weak Apple Inc. AAPL demand, this was partially offset by Samsung. Gross margin came in at 60 percent, ahead of the Street estimate of 59 percent.

Expectations had been low, due to the known Apple softness, and Broadcom’s results were boosted by synergies coming in faster, analyst Blayne Curtis noted.

Broadcom announced its 2Q guidance meaningfully ahead of expectations, with revenue projection at $3.68-$3.83B, up 3-7 percent sequentially. The Wireless segment is expected to record strong q/q growth, backed by the Apple ramp and iPhone 7 content gains. Implied non-GAAP EPS is at $2.58-$2.95, with the midpoint at $2.77 ahead of the Street’s $2.63.

Curtis raised the EPS estimates for FY1 and FY2 from $10.61 to $10.92 and from $12.43 to $12.59, respectively.

The Story Is Intact

The merger is tracking ahead of expectation, the Wireless segment is expected to generate strong growth and the Wired segment is benefiting from secular strength. While expecting the iPhone 7 cycle to be weak, the analyst expressed optimism regarding Broadcom, citing:

1. Near-term expectations are already sufficiently reset
2. Visibility into content gains for the next several years in both cellular and connectivity

“Net net, AVGO remains one of our favorite names offering secular growth, further operational leverage, and capital returns at one of the lowest valuations in the group,” Curtis wrote.