Broadcom (AVGO): The CA Saga Continues, Top Analyst Weighs in on the Stock
Investors were not impressed with Broadcom’s (NASDAQ:AVGO) decision to pay $18.9 billion or $44.50 per share (a 20% premium) in cash for software maker CA Technologies (NASDAQ:CA), sending shares diving nearly 17% last week.
Mizuho’s top analyst Vijay Rakesh believes there is more investor confusion on the direction of Broadcom, noting, “We believe while investors have been having callbacks with management, investor pushback at an unexpected surprise from a big software acquisition potentially strays from AVGO’s hardware focus. We believe Friday also saw a pullback on concerns AMZN might be making its own networking chips. We believe networking chips usually are on a 2-3 year design cycle, so any substitution could take time.”
Rakesh points out that based on investor feedback, Broadcom management is agnostic to where the earnings are coming from semiconductor hardware or software and essentially focusing on earnings dollars.
The analyst stated, “From the investor point of view, this makes modelling much tougher and more difficult to pinpoint where the next upside or downside is coming from. Investors feel CA has not really grown for many years and is dampening AVGO topline outlook from L-T 4-5% growth to 3% growth. While AVGO could now become a rollup vehicle for both semiconductor and software names, we believe it could remove focus on execution.”
Long-term, the analyst remains bullish on Broadcom shares, reiterating a Buy rating and price target of $280, which represents a potential upside of 36% from where the stock is currently trading.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Vijay Rakesh has a yearly average return of 28% and a 68% success rate. Rakesh has a 27% average return when recommending AVGO, and is ranked #42 out of 4843 analysts.
Over the last three months, Broadcom stock has received a whopping 22 Buy ratings and just 6 Hold ratings. As a result, the stock has a ‘Strong Buy’ analyst consensus rating. These analysts believe (on average) that Broadcom has big upside potential of nearly 50% from the current share price. This would take AVGO from $205.15 all the way to $305.65.