(AVGO) shares are up more than 10% on Friday, as investors cheer its better-than-expected bottom-line results and reiterated guidance.
The back story. Broadcom has edged up less than 1% in the trailing 12-month period, as chip stocks in general have had a rough ride on worries about ongoing demand and the fallout from the trade war. Yet Broadcom remains an analyst favorite as they argue that the shares have gotten too cheap despite ongoing headwinds for the group. Moreover, 2019 has been kinder to the group, with the
iShares PHLX Semiconductor ETF
(SOXX) up more than 18% year to date. Broadcom hasn’t gained that much, although it’s still up nearly 6% this year.
What’s new. Broadcom said it earned $5.55 a share in its fiscal first quarter, on revenue of $5.79 billion. Analysts were looking for EPS of $5.32 and revenue of $5.83 billion. For the full year, the company expects revenue of $24.5 billion, compared with the $24.36 billion consensus estimate.
Looking ahead. While the revenue miss might have been a disappointment, investors chose to focus on the bottom line, as well as the company’s ability to reiterate full-year guidance despite concerns about deteriorating conditions in the sector in the past year. Although 2019 has seen the sector rebound, many still worry about the backdrop for the space, as the trade war drags on and smartphone sales gains remain tepid. Barron’s also touted Broadcom’s safe and generous dividend. That helps the company stand out in the semiconductor space.
Analysts were upbeat on the report.
Vijay Rakesh reiterated his Buy rating and added $10 to his price target, bringing it to $305. He wrote that the company’s acquisition of CA helped, as the quarter was stronger than what the legacy business alone would have delivered. He’s also heartened about the company’s upbeat outlook for the second half of the year, even with ongoing weakness in China, and he applauded the company’s solid margins and free cash flow profile.
SunTrust Robinson Humphrey
William Stein also reiterated a Buy rating, and raised his price target to $339 from $304. He wrote that the company’s results “exceeded expectations overall,” and that its full-year forecast appears “solidly beatable on sales, earnings per share, and free cash flow.” The valuation is still cheap, he argued, and Broadcom still boasts “stunning free cash flow levels and growth.”
Broadcom was up 10.6% to $296.63 in recent trading.
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