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Broadcom Is Baird's New Top Large-Cap Semi Pick

Broadcom Is Baird's New Top Large-Cap Semi Pick

Broadcom Inc (NASDAQ: AVGO) reported 13-percent year-over-year third-quarter revenue growth and a 21-percent increase in non-GAAP earnings per share on Thursday. The revenue was roughly in line with estimates, while the bottom line exceeded expectations.

The company issued in-line revenue and gross margin guidance for the fiscal fourth quarter.

The Analyst

Baird analyst Tristan Gerra reiterated an Outperform rating on Broadcom and increased the price target from $290 to $300.

Gera named Broadcom as Baird's top large-cap semiconductor idea.

The Thesis

An attractive valuation; secular growth trends in RF, which is likely to return to double-digit growth in 2020 due to 5G; anticipated share gains; a new Wi-Fi cycle; deep learning ASICs; storage; and other secular growth driver make Broadcom top large-cap semiconductor idea, Gerra said in a Friday note. (See the analyst's track record here.) 

Broadcom is a particularly attractive value stock compared to more cyclical semi names, even as the sector adjusts to mid-single digit year-over-year growth into 2019, the analyst said. 

Broadcom's acquisition of CA, Inc. (NASDAQ: CA) should add up to 20 percent to EPS, Gerra said — a figure the analyst said is not included in Baird's current estimates. Broadcom sees strong cross-selling synergies with CA's large enterprise customers, he said. 

Broadcom expects ongoing expansion in gross margins for existing products, and operating margin growth as the gross margin ramp outruns R&D spending, according to Baird. 

The Price Action

Shares of Broadcom have lost about 15 percent year-to-date. The stock was rallying 8.3 percent to $233.90 at the time of publication Friday. 

Related Links:

Morgan Stanley: Nvidia 'The Cleanest Growth Story In Semis,' With New Products Ahead

ON Semiconductor Faces Potential Multiple Contraction, Morgan Stanley Says In Downgrade

Latest Ratings for AVGO

Mar 2021JP MorganMaintainsOverweight
Mar 2021RBC CapitalMaintainsOutperform
Mar 2021Wells FargoMaintainsEqual-Weight

View More Analyst Ratings for AVGO
View the Latest Analyst Ratings


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