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There Was A Lot To Like In Broadcom's Earnings

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There Was A Lot To Like In Broadcom's Earnings

Broadcom Ltd (NASDAQ: AVGO) reported its first quarterly financial results as a combined entity with Avago on Thursday. Second quarter EPS of $2.53 and revenue of $3.56 billion beat the Street’s consensus by $0.15 and $10 million, respectively.

Following the earnings report, MKM Partners’ Executive Director Ian Ing reiterated a Buy rating and $188 12-month price target on the stock, pointing out he especially liked “Diversification, Synergies, and a 40% OM Model Receptive to More M&A.”

The expert explained that the EPS beat was largely driven by faster-than-expected operating synergies between the two companies, and robust product cycles in the leading Wired Infrastructure segment, which accounted for 58 percent of total revenue – including Tomahawk switching and Jericho routing.

Related Link: Broadcom Shares Up 8% Following Q2 Earnings; Morgan Stanley Reiterates Overweight

Management guided for third quarter revenue of $3.75 billion (+/- $75 million), which compared to expectations for $3.71 billion. Gross margin and opex guidance were “comfortably above expectations.” Moreover, Ing noted, the guidance for the wireless segment “up mid-20s suggests an end to inventory digestion (rather than order pull-ins) and a resumption of normal seasonal smartphone builds and accelerating growth into the October quarter.”

Broadcom should now reap the benefits of diversification, an ongoing $750 million per year synergy achievement by the end of fiscal 2018, “and an efficient 40%+ operating profit model that benefits from future M&A,” the report concluded.

Shares of Broadcom were trading up more than 5 percent on Friday.

Latest Ratings for AVGO

DateFirmActionFromTo
Sep 2020Piper SandlerMaintainsOverweight
Sep 2020Wells FargoMaintainsEqual-Weight
Sep 2020Deutsche BankMaintainsBuy

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