Broadcom (AVGO) started 2019 with a bang, posting better-than-feared fiscal first-quarter results.
Specifically, the chip giant reported January quarter sales of $5.79 billion, up 6.3% q/q, driven mainly by strong networking and infrastructure software businesses offset by declines in Wireless. Non-GAAP EPS of $5.55 exceeded the Street’s forecast of $5.22, on better product mix and the inclusion of CA, and better than expected other income. Looking ahead, the company reiterated its FY2019 guidance of sales of $24.5 billion (up 17.5% y/y), despite seeing a softening demand environment in China, which had already been factored in to the original guidance given last quarter.
AVGO investors reacted positively to the earnings report, bidding up the stock nearly 8% in Friday’s trading session. The stock is now trading at $290.29, just pennies below the all-time highs.
The earnings results prompted a wave of positive comments from industry watchers.
Rosenblatt analyst Hans Mosesmann commented, “Solid overall January quarter results and the reiteration of FY19 sales of $24.5 billion demonstrates the company’s superior business model able to withstand industry gyrations and uncertainty. Investors may take pause on declining gross margins for the rest of the year, but we would position as mix related on conservatism on the CA part of the business. Relatively strong semiconductor business trends are being driven by networking data center Tomahawk3 switches (offsetting industry compute and storage inventory issues) and stabilization in wired/broadband. Wireless is viewed as having a strong back half of the year on strong dollar content expansion (FBAR content and reclaiming a lost socket from last year). Software solutions is performing better than expected but management pulled back expectations for the year just on conservatism which is prudent, we believe, at this early stage of this new business.”
Mosesmann reiterates a Buy rating and $350 price target on AVGO stock. (To watch Mosesmann’s track record, click here)
Susquehanna analyst Christopher Rolland added, “We found Hock’s comment about 5G only offering a small contribution in 2020, but more impactful beyond 2020, to be odd. While he did caveat this was an area of “vast uncertainty,” the comment was still unusual as most (including us) expect Apple to launch the 5G model in 2020. CA upsided in C4Q18 and appears to be tracking well, but management oddly reaffirmed a FY estimate well below the current run rate (although suggested it may just be conservatism). Putting all the pieces together, while we believe there is some risk to FY top-line guidance, they should be able to hurdle FY op margin guidance of 51%, resulting in relatively unchanged estimates vs. our prior as Broadcom continues to execute better than most this cycle.”
Rolland reiterates a Positive rating on AVGO shares with a $320 price target.
All in all, the Street largely seems to echo Mosesmann’s and Rolland’s positive sentiment, considering TipRanks analytics showcase AVGO as a Buy. Out of 26 analysts polled in the last 3 months, 19 are bullish on Broadcom stock, while 7 remain sidelined. With a potential upside of nearly 6%, the stock’s consensus target price stands at $307.65. (See AVGO’s price targets and analyst ratings on TipRanks)