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Bull of the Day: Avago Tech


In early December, Avago Technologies (NASDAQ: AVGO) crushed the Zacks Consensus Earnings and Revenue Estimates mainly due to their wireless communications division, which saw 73% growth quarter over quarter.  Further, growing demand for BAW filters in China and India helped boost growth as well.  

Avago Technologies is a leading designer, developer, and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing.  The company serves four primary target markets, Wireless communications, Wired Infrastructure, Enterprise storage, and Industrial and Other.  

Increasing Estimates

The higher than expected wireless growth, 4G deployment and adoption of 4G smartphones in China and India, and high volume shipments and content gains due to Apple’s IPhone 6/6+ have caused management to increase revenue guidance for Q1 2015.  Management increased Q1 15 revenue guidance to $1.64 billion, up from the Zacks Consensus Estimate of $1.51 billion due to anticipated tailwinds throughout Q1 2015 from the sales of Apple’s IPhone 6/6+.  

Price and Consensus

The table below shows the Price and Consensus Estimates for Avago Tech going through 2015.  As you can see the estimates really began to jump in the mid-part of 2014, and the stock price has subsequently appreciated.

Guidance Increasing

Over the past 30 days, the Zacks Consensus Earnings Estimates for Q1 15, Q2 15, FY 15, and FY 16 have all significantly increased; Q1 15 increased from $1.50 to $1.78, Q2 15 rose from $1.32 to $1.50, FY 15 climbed up from $5.87 to $6.67, and FY 16 increased from $6.39 to $7.07.  

Positive Earnings Surprise

Avago has posted a positive earnings surprise for 6 out of the last 7 quarters with a four quarter average positive surprise of 15.33%, indicating that the company tends to solidly beat earnings estimates.  Further, the company has beat the Zacks Revenues Estimates 5 out of the last 7 quarters.  

As you can see in the table below, AVGO has seen solid price appreciation in their last 5 earnings beats, and with the solid deployment of the IPhone 6/6+, the expectations are continuing to raise even higher.

Bottom Line

After posting solid fourth quarter 2014 earnings and revenues, management is anticipating strong tailwinds for Q1 2015 due to the following; continued sales from IPhone 6/6+, increasing traction with 4G in China and India, and growing demand for their BAW filters across the world.  Therefore, Avago Technologies is the Zacks’s Bull of the Day, and should see continued growth into the new-year.  
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