Bullish Broadcom Analysts Lift Price Targets, Highlight Execution, iPhone Exposure

Broadcom Inc AVGO reported strong quarterly results Thursday, sending the semiconductor stock higher. 

The Broadcom Analysts: BofA Securities analyst Vivek Arya reiterated a Buy rating on Broadcom shares and upped the price target from $400 to $450.

UBS analyst Timothy Arcuri maintained a Buy rating and hiked the price target from $335 to $425. 

Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and increased the price target from $370 to $430.

Morgan Stanley analyst Craig Hettenbach maintained an Overweight rating and lifted the price target from $358 to $415.

KeyBanc Capital Markets analyst John Vinh maintained an Overweight rating and increased the price target from $360 to $410.

Credit Suisse analyst John Pitzer reiterated an Outperform rating and raised the price target from $400 to $420.

BofA Sees Q4 Inflection In Core Semi Growth:  Broadcom's fiscal-year third-quarter sales of $5.82 billion represented 6% year-over-year growth and a 1% quarter-over-quarter increase and came in ahead of the consensus estimate of $5.77 billion. Pro forma EPS was 19 cents ahead of consensus at $5.40, BofA's Arya said in a note.

The free cash flow margin of 53% is an industry best, the analyst said. 

The fourth-quarter sales guidance of $6.4 billion is also $200 million ahead of the consensus and incorporated a 50% quarter-over-quarter increase in wireless, he said.

The fourth quarter should mark an inflection in core semi sales, and wireless and core semis all are expected to grow again in the first quarter, Arya said. 

The company also said it has baked into the guidance the effects of any China customer restrictions, the analyst said. 

BofA raised its EPS estimates for fiscal years 2020 and 2021.

The firm said it likes Broadcom's multipronged growth, leading margins and dividend growth.

See also: BofA's Stock Picks For Income Funds In 'Extremely Volatile' Earnings Season

Broadcom Delivered On All Fronts, UBS Says: Broadcom delivered on all fronts, while also offering visibility into the wireless segment for the fourth quarter, UBS analyst Arcuri said.

Along with strong iPhone 5G procurement by Apple Inc. AAPL, the company is also the beneficiary of other strong product cycles, especially in cloud and networking, the analyst said. 

The software business has seen recurring revenues cushioning cyclicality in the downturn, and the CA business remains on track for mid-single digit year-over-year growth, he said. 

Although Broadcom is levered, Arcuri said the company is aggressively paying down debt.

With the company likely paying out a $14 or so per share dividend for 2021, UBS said the stock is an attractive source of income given its solid growth profile.

Rosenblatt Sees Scope For Higher Broadcom Margins: Broadcom is seeing particularly good visibility in networking — both cloud and telecom — driven by a significant networking switch cycle, said Rosenblatt's Mosesmann. 

The Apple ramp, though delayed by a quarter, is unfolding nicely now, driven mainly by the 35%-plus dollar content position in the new models, the analyst said.

"Management is focused on maintaining its franchise presence in key segments while increasing either silicon content and/or ASPs, which we think has secular repercussions to get to the next level of 60% EBITDA margins from the current 57%." 

Morgan Stanley Positive On New Product Cycles: Broadcom has exposure to new product cycles in wireless, with the 5G smartphones, and networking through Tomahawk and Trident 3, Morgan Stanley's Hettenbach said.

Although the company's leadership in merchant silicon for the cloud is a main focal point, commentary about adoption at telecom service providers is a positive development, the analyst said.

The new product cycles are a clear plus, but there will be concerns surrounding the cloud given mixed data points in the space and Broadcom's extended lead times, he said. 

How Apple Delay Positions Broadcom For Strong Q4: Strength in the quarter was led by better-than-expected demand for the iPhone SE and iPad due to 5G and Wi-Fi 6 content growth, KeyBanc's Vinh said.

The delayed iPhone 5G phone launch should drive over 50% sequential wireless growth in the fourth quarter, the analyst said. 

Cloud and broadband strength contributed to the strong results, offsetting weak enterprise, he said.

Infrastructure software results were in line and remain stable, according to KeyBanc. 

AVGO Price Action: Broadcom shares were trading 3.46% higher at $364.28 ahead of the close Friday. 

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