Broadcom Ltd (NASDAQ:AVGO) shares are rising 4% after storming past Street-wide expectations with a stellar fourth fiscal quarter showcase to close out 2017. Meanwhile, with a first fiscal quarter guide that likewise has outclassed the Street on impressive operating performance across the board, this large-cap semi-conductor player is looking good approaching 2018.
Top analyst Michael Walkley at Canaccord additionally sees a Wired Division primed for even more gains come fiscal 2019, as the company takes a large swing at the data center market with a $5.9 billion Brocade acquisition. The takeover will drive standout storage growth, the analyst predicts, and with a wired portfolio in great standing to capture market share in targeted end markets, this chip maker is worth the buy. The AVGO team noted that even with just a partial quarter of Brocade, around $250 million should be added to the company’s first fiscal quarter revenue for 2018.
On back of even higher confidence following robust execution for the quarter, the analyst reiterates a Buy rating on AVGO stock while lifting the price target from $313 to $317, which represents a 15% increase from current levels.
For the fourth fiscal quarter of 2017, AVGO posted pro forma EPS of $4.59, beating out the analyst’s estimate calling for $4.49. Overall sales also climbed above the analyst’s forecast coupled with a gross margin of 63.3% topping the analyst’s and the Street’s projection of 63% by a hair, which Walkley attributes to consistent strength in execution and mix.
The gross margin guide of 64% also hit just past the analyst’s expectations now that Brocade’s stellar FC SAN gross margins of 77% are part of the company’s model for a partial quarter. Meanwhile, with Apple’s new iPhone product ramp on the loose, Walkley eyes “sustained strength” in the chip maker’s wireless segment through the first fiscal quarter of 2018. With this in mind, the analyst commends AVGO for reporting a revenue guide for the first fiscal quarter of 2018 past both his and the Street’s estimates. Implies first fiscal quarter non-GAAP EPS guide of around $4.85 was well ahead of the analyst’s already recently boosted $4.51 forecast. Based on solid content share gains and AVGO’s overall guide, the analyst has subsequently hiked his estimates.
Walkley contends, “Due to the delayed production ramp for iPhone X and an extra week resulting in a 14 week Q1/F2018, we expect wireless revenue to increase during the January quarter versus a more typical seasonal decline of 12%. Consistent with our expectation, Broadcom materially increased their dividend to $1.75/quarter and reiterated their target of paying out 50% of FCF on a TTM basis. In addition, management increased their long-term model targets with gross margin increased from 60% to 65% operating margin to 47.5% from 45%, and FCF to 40% of net revenue from 35%. Management addressed its $70 bid for Qualcomm but did not provide new details or take any questions regarding the proposed merger. We view a potential Qualcomm acquisition up to even $100 per share as accretive to our increased Broadcom estimates, and the combination would create the third largest semiconductor company in terms of revenue, likely well positioned for strong long-term earnings and cash flow generation.”
Michael Walkley has a very good TipRanks score with a 66% success rate and a high ranking of #42 out of 4,721 analysts. Walkley yields 19.7% in his annual returns. When recommending AVGO, Walkley realizes 51.2% in average profits on the stock.
TipRanks points to a strong bullish consensus when taking under account analyst expectations for the last 3 months. Consider that all 24 analysts polled rate a Buy on Broadcom stock. With a return potential of 19%, the stock’s consensus target price stands at $314.77.