BofA Weighs Broadcom's 'Effective' M&A Track Record, Symantec's 'Lackluster Growth Profile'

Recent media reports suggest that Broadcom Inc AVGO could be nearing a $10-billion deal for Symantec Corporation SYMC's enterprise security business.

Although the concerns around growth and Symantec’s relative instability remain, Broadcom has a strong M&A track record, according to Bank of America Merrill Lynch.

The Analyst

Vivek Arya maintained a Buy rating on Broadcom with an unchanged $345 price target.

The Thesis

In July, there were media reports of Broadcom being in talks to buy Symantec as a whole, Arya said in a Wednesday note. (See his track record here.) 

The latest deal is reportedly for Symantec’s enterprise security business, which is a better fit for Broadcom than acquiring the entire company, including its consumer business, the analyst said. 

The deal is aligned with Broadcom’s efforts to diversify away from cyclical semis and more into recurring revenue software, Arya said. In a similar vein, Broadcom acquired mainframe software company CA Technologies in 2018, he said. 

The enthusiasm around the latest deal is dampened by Symantec’s “lackluster growth profile” and relative instability, the analyst said. He pointed out that the company’s enterprise security sales declined by 10% in fiscal 2019. 

Despite these challenges, what remains is that Broadcom's M&A strategy has proved to be “extremely effective” in consistently generating free cash flow, according to BofA. 

Price Action

Broadcom shares were down 0.27% at $269.31 at the time of publication Thursday. 

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