Market Overview

Baird: Broadcom Lowers Full-Year Revenue Outlook On High Channel Inventory

Baird: Broadcom Lowers Full-Year Revenue Outlook On High Channel Inventory

Broadcom Inc (NASDAQ: AVGO) lowered its full-year revenue guidance, dispelling hopes of a recovery in the back half of the year, according to Baird.

The Analyst

Tristan Gerra maintained an Outperform rating on Broadcom and reduced the price target from $300 to $280.

The Thesis

Earlier in 2019, several semiconductor companies had guided to a recovery in the second half, but did not take into account “high and still-rising inventories,” Gerra said in a Friday note. (See his track record here.) 

Broadcom reported second-quarter non-GAAP EPS of $4.03 Thursday, almost meeting the consensus estimate of $4.04.

GAAP EPS came in at $1.64. The company reported non-GAAP revenue of $5.52 billion, representing a sequential decline of 4.7% and missing the consensus estimate of $5.68 billion.

Broadcom reduced its non-GAAP revenue guidance for 2019 from $24.5 billion to $22.5 billion.

This still reflects 8% year-on-year growth, Gerra said. Broadcom also raised the non-GAAP operating margin target from 51% to 52.5%, while reducing the GAAP operating margin target from 17.6% to 14.75%. 

The key reason for the lower full-year revenue guidance is channel inventory reductions, the analyst said, adding that it's an industry-wide deleveraging that could continue for several years.

"Abundant red flags" have popped up on these trends since the turn of the year, according to Baird. 

Price Action

Broadcom shares were up 0.97% at $268.47 at the time of publication Monday. 

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Latest Ratings for AVGO

Jan 2020MaintainsBuy
Dec 2019MaintainsBuy
Dec 2019MaintainsMarket Perform

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