The stock market’s dim view of Broadcom (NASDAQ:AVGO) has gotten even dimmer. Charter analyst Edward F. Snyder wasted no time giving up his buy rating on AVGO. He downgraded the stock from Buy to Market Perform, following the news that the chip maker intends to purchase CA Technologies, a mainframe/enterprise software company, for ~$19 billion or $44.50 per share, a +20% premium to Wednesday’s closing price.
Snyder commented, “As the press release and materials announcing the bid for CA Technologies made clear, Broadcom’s new M&A strategy no longer requires it stick to familiar products and markets. Indeed, the absence of a conference call explaining its rationale for this deal when it held one for the much smaller Brocade acquisition suggests there is no other rationale. That’s spooked markets and left the impression that if the once incontrovertible product/market criteria are so easily brushed aside, is anything sacred? If the passion for deals is paramount, what’s to prevent the next one or the one after that from being dilutive? Where does it end?
“So, while our faith in Hock Tan’s ability to identify, acquire and wring value from under-performing companies is unaffected by yesterday’s announcement, we expect many investors will flee the stock to preserve their discretion on allocating capital to specific products and sectors rather than surrender it to Broadcom. This is already punishing AVGO which is down 15% today and will probably weigh on the stock until management finds some way to assuage these concerns or the change out of investor base from growth to value is affected. So, while we maintain estimates, we’re lowering our rating from Buy to Market Perform,” the analyst added.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Edward Snyder has a yearly average return of 20.9% and a 71% success rate. Snyder has a 52.7% average return when recommending AVGO, and is ranked #595 out of 4842 analysts.
Overall, out of the 32 analysts polled in the past 12 months, 28 rate Broadcom stock a Buy, while 4 rate the stock a Hold. With a return potential of 49%, the stock’s consensus target price stands at $310.93.