3 Tailwinds Broadcom Is Set To Benefit From Over The Coming Quarters

Broadcom Ltd AVGO reported robust January quarter results, while issuing a conservative guidance for 2017, which was ahead of the consensus.

RBC Capital’s Amit Daryanani maintained a Top Pick rating on the company, while raising the price target from $230 to $240.

Confluence Of Tailwinds

The analyst believes Broadcom will benefit “from a confluence of multiple tailwinds,” over the next few quarters.

These tailwinds include “1) content uptick at Samsung that should enable Wireless to observe better-than-seasonal trends, 2) sustained growth in Wired infrastructure driven by a confluence of momentum in switching/routing and a seasonal increase in demand in broadband access and STB products, 3) continued OpEx control and gross margin expansion given the Apr-qtr is typically the lightest quarter from a revenue and gross profit perspective historically.”

Daryanani believes the company is well positioned to sustain EPS of $15 in FY2017, and close to $18 following the Broadcom integration, which is likely to close in the next quarter.

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Impressive Results

For the January quarter, the company reported non-GAAP revenue of $4.15 billion and EPS of $3.63, ahead of the consensus expectations.

The higher than expected revenue was driven by a robust ramp in Enterprise Storage and the performance of the Wired business, which more than mitigated the seasonal decline in the Wireless segment.

Gross margins came in at 62.4 percent, with operating margins of 43.5 percent, again both metrics beating the consensus and reflecting better than anticipated cost control plans.

Guidance

For the April quarter, Broadcom guided to revenue of $4.10 billion, implying RPS of $3.48, ahead of the current consensus forecasts.

The company also guided to gross margins of 62 percent, with operating expense of $789 million and interest and other expense of $106 million.