Broadcom Ltd (AVGO) Wired Portfolio Well-Positioned to Gain Shares, Says Top Analyst

Canaccord Expects Broadcom to See Even More Growth from iPhone Cycle Through Fiscal 2018


Top analyst Michael Walkley of Canaccord is out with a bullish note after Broadcom Ltd (NASDAQ:AVGO) hit all the right marks with its third fiscal quarter performance for the year. Thanks to strength witnessed throughout every business section and content captures in the iPhone platform, the analyst believes the chip maker was able to realize stellar outlook. It looks as if Broadcom is one step closer to attaining it long-term growth rate goals in the mid-single digit range, as Walkley deems the company’s wired portfolio in robust standing to amp up share in its focused end markets.

For the third fiscal quarter, AVGO’s pro forma EPS reached $4.10, beating out the analyst’s prediction of $4.02, with overall sales just ahead of Walkley’s forecast. Gross margin of 63.3% was an inch above the analyst’s and consensus expectations looking for 63% on back of ongoing sharp execution as well as mix. “Wired division revenue increased 5% sequentially with strength in set-top box sales offsetting weakness in Chinese optical demand consistent with other market participants’ recent results,” highlights the analyst.

Likewise, the chip maker’s fourth fiscal quarter guide for 2017 on revenue outperformed both the analyst’s and consensus expectations, riding the ongoing iPhone product ramp, cheers Walkley. Not only does the analyst praise the iPhone cycle as the primary driver lifting Broadcom’s successful third fiscal quarter, he looks for even more growth through the rest of fiscal 2018. While gross margin outlook of 63% did top the analyst’s projection, it also witnessed a 30bps sequential dip, attributed to a rising mix of wireless products underperforming the corporate average.

Expecting the next-generation iPhone to bring stellar sales, the analyst models a 31% rise in wireless division sales for the fourth fiscal quarter, compared to last quarter’s 11.5% sequential sales growth coupled with a seasonal dip in the first fiscal quarter of 2018 of 4%, much lower than the previous year of 13%. “We anticipate a strong sales ramp for the next-generation iPhone products in Broadcom’s January quarter […]” says Walkley. Fourth fiscal quarter non-GAAP EPS outlook of approximately $4.48 nicely outclassed the analyst’s forecast that was already boosted recently to $4.41.

Looking ahead, Walkley notes, “With our expectation Apple will sell 250M iPhones in C2018 combined with Broadcom’s increasing content share, we believe our estimates could prove conservative, especially if the iPhone 8 mix is greater than anticipated. As Broadcom executes on its focus to generate stronger FCF following several years of acquisitions, we anticipate a material increase in the dividend as management targets 50% of FCF on a TTM basis […] If Broadcom were to maintain their 50% target dividend payout ratio in FY18, the dividend could increase from the current $4.00 annually to $10.00 in F2019 generating an attractive yield for dividend growth investors.”

In reaction to the print, the analyst reiterates a Buy rating on AVGO stock with a price target of $300 representing a near 21% rise over current trading levels.

Michael Walkley has a very good TipRanks score with a 64% success rate and a high ranking of #35 out of 4,610 analysts. Walkley yields 19.4% in his annual returns. When recommending AVGO, Walkley garners 51.8% in average profits on the stock.

TipRanks analytics exhibit AVGO as a Strong Buy. Out of 24 analysts polled by TipRanks in the last 3 months, all 24 are bullish on Broadcom stock. With a return potential of 17%, the stock’s consensus target price stands at $286.95.