Broadcom (AVGO) Sees Higher Revenues Ahead ; Stock Gains

Leading semiconductor manufacturer has high hopes for the near future

Broadcom AVGO stock

Chip vendor Broadcom Limited (NASDAQ:AVGO), a prominent supplier to iPhone maker Apple, Inc (NASDAQ:AAPL), reported fourth quarter non-GAAP EPS of $3.47 after the closing bell Thursday, compared to the consensus estimate of $3.38. Revenues for the period, which closed Dec. 1, increased nearly 125% from $1.84 billion last year to $4.14 billion. The Street expected revenues of $4.12 billion. Gross profit margin meanwhile, came in at $2.17 billion, or 52.5% of net revs, slipping from $997 million, or 54.2% of net revs a year earlier.

The company also announced it doubled its quarterly dividend prior quarter as well following improved profitability. Broadcom’s new cash dividend will be $1.02 per share per quarter from $0.51 prior, payable at the close of business (5:00 p.m.) ET on on Dec. 30th to shareholders of record as of Dec. 16th.

CEO Hock Tan stated the year had been “clearly transformative for our company, as we complete the integration of Broadcom Corp.” and called the quarter a ‘strong” finish’, pointing to a 9% revenue growth on quarter-over-quarter basis. Tan also said that looking at fiscal year 2017 and beyond, he expects Broadcom’s business “to be continuing to be sustainable and in fact become much more profitable.” He added that the company was raising its long-term operating margin to a forecast of 45%, a rather significant jump from below 40% printed in fiscal 2Q16.

Looking ahead, the company guided Q117 revenues of $4.00 billion to $4.15 billion, excluding non-recurring items, as compared to analysts’ expectations of $3.96 billion. Capex is expected to be roughly $330 million while depreciation and amortization are expected to be $116 million and $999 million, respectively. Cash taxes expected to be paid during fiscal year 2017 could print $400 million.

Broadcom stock is up pre-market $7.09, or 3.50%, to $177.80. The name currently prints a one year-to-date return of about 24 percent.

The $69.4 billion market cap Singapore-based company, whose merger with Avago Limited closed in February, has a median Street price target of $205 with a high target of $250. Currently, there are 26 analysts that rate AVGO a ‘Buy’, 2 rate it a ‘Hold’. No analyst rates it a ‘Sell’.

Following 4Q16 results, analysts at Mizuho upgraded their rating on the Broadcom stock. In a research note published this morning, the firm set a 12-month base case estimate of $210 from $200 per share. Broadcom’s price target was also raised to $210 from $205 at Cowen, implying 18 percent expected return.

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