Market Overview

Broadcom Still A Top Pick Among Analysts Despite Blocked Merger

Broadcom Still A Top Pick Among Analysts Despite Blocked Merger

Broadcom Ltd (NASDAQ: AVGO)'s pursuit of QUALCOMM, Inc. (NASDAQ: QCOM) has come to an end after President Donald Trump blocked the deal. While Singapore-based Broadcom is free to pursue acquisitions of other U.S.-based companies, Wall Street analysts are now resuming coverage of the stock under the assumption it will remain a standalone company in the near-term.

The Analysts

  • Bank of America's Vivek Arya resumed coverage of Broadcom's stock with a Buy rating and $340 price target.
  • Deutsche Bank's Ross Seymore resumed coverage of Broadcom's stock with a Buy rating and $325 price target.

Arya: Multiple Positive Attributes

BofA's bullish investment thesis for Broadcom is based on a plethora of factors, Arya said in a research report. They include:

  • A diversified product portfolio across mobile broadband, cloud switching, enterprise storage and AI chips.
  • A sector-leading 2.8-percent dividend yield and an attractive valuation of 16x on CY2018E P/E with the potential to move higher to 20x.
  • A sustainable long-term organic sales outlook of 6-to-8 percent.
  • An industry-leading operating margin of 48.9 percent, with a path to move above 50 percent over the next six to eight quarters.
  • The potential for best-in-class 40 percent free cash flow.
  • The stock is still trading at a 20-percent discount to peers.

Seymore: Focus On Free Cash Flow

Broadcom's pursuit of Qualcomm ended in "disappointment," but the company can now resume its prior strategy of allocating its free cash flow between dividends and M&A deals, Seymore said in a research report.

It wouldn't be a surprise if the company increases its mix toward dividends, and cash returns will become an "increasingly dominant metric on which the company is valued," the analyst said. 

Related Links:

Trump Blocks Broadcom-Qualcomm Deal Citing National Security Concerns

Why Broadcom Is A Favorite At Bernstein, With Or Without Qualcomm

Latest Ratings for AVGO

Apr 2020Charter EquityUpgradesMarket PerformMarket Outperform
Mar 2020KeyBancMaintainsOverweight
Mar 2020Morgan StanleyMaintainsOverweight

View More Analyst Ratings for AVGO
View the Latest Analyst Ratings


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