Market Overview

Buying Brocade Boosts Broadcom's Price Target At Pacific Crest

Share:

Following Broadcom Ltd's (NASDAQ: AVGO) agreement to buy Brocade Communications Systems, Inc. (NASDAQ: BRCD), KeyBanc raised its price target for the former to $215 from $200. The rating was maintained at Outperform.

Analyst John Vinh is of the view that the proposed buy could allow Broadcom monetize the entire Fibre channel value chain and provide meaningful earnings per share accretion. Accordingly, the company could see outsized earnings growth, the analyst noted.

KeyBanc noted that Broadcom struck the deal for $12.75 per share in cash, representing a total enterprise value of $5.9 billion. The firm sees logic in the deal, as Brocade's Fiber channel switching business could be complementary to Broadcom's existing storage business. To avoid customer conflict, the firm said IP networking will be divested.

Assuming Brocade will add $900 million in EBITDA to fiscal year 2018, the firm estimates a $1.06 per share contribution from it, for combined earnings power of $16.58.

KeyBanc also noted that Broadcom raised the low-end of its fiscal year fourth quarter revenue guidance to $4.1 billion from $4.025 billion but maintained the high end at $4.175 billion. This compares favorably to the consensus estimates and the firm's estimates. Broadcom is also seeking to raise its operating margin target to 45 percent from 40 percent, given Brocade's Fiber channel gross margins of over 70 percent and operating margins of over 50 percent.

Latest Ratings for AVGO

DateFirmActionFromTo
Nov 2019MaintainsEqual-Weight
Sep 2019MaintainsEqual-Weight
Sep 2019DowngradesBuyHold

View More Analyst Ratings for AVGO
View the Latest Analyst Ratings

Posted-In: KeyBancAnalyst Color Price Target Analyst Ratings

 

Related Articles (BRCD + AVGO)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
XELBDA DavidsonAssumes
RMBLB. Riley FBRMaintains3.0
TLRYMKM PartnersMaintains26.0
ENRSunTrust Robinson HumphreyMaintains55.0
TRIPSunTrust Robinson HumphreyMaintains43.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Why Ultimate Software Is The Big Winner If NetSuite's Oracle Deal Fails

The Expert Opinion On First Solar's Q3