Why Analysts Are Bullish On Broadcomm After Q1 Print

Chipmaker Broadcom Inc. AVGO reported late Thursday its fiscal-year 2021 first-quarter results, which came in ahead of expectations.

The Broadcom Analysts: Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating on Broadcom shares and raised the price target from $470 to $540.

Raymond James analyst Chris Caso reiterated a Market Perform rating.

The Broadcom Theses:

Rosenblatt Left Impressed With Broadcom's Handling of Semi Cycle: Broadcom's handling of the current semiconductor cycle is impressive, Rosenblatt analyst Mosesmann said in a note. The company started the process of managing supply nine months ago, much earlier than the industry, and implemented a non-cancellable booking policy that now has covered about 90% of 2021 shipments, the analyst noted.

With its model of targeting leadership products to flagship customers, Broadcom's management has good visibility into what these customers need, Mosesmann said.

From a product perspective, the company is executing flawlessly in its business, including networking, wireless, storage and broadband semiconductor strategic segments, plus infrastructure software stability, he added.

Delving on the quarterly results, Mosesmann said the better-than-expected revenues were due to a sequential increase in both the semiconductor solutions and infrastructure software segment. Higher top-line growth and lower operating expenditure helped the company exceed bottom-line expectations, the analyst said.

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There's Upward Bias to Estimates, Raymond James Says: Broadcom's semiconductor solutions sales rose 17% year-over-year in the first quarter, thanks to a 52% jump in wireless business due to the delayed iPhone launch, Raymond James analyst Caso said.

Networking sales, the analyst said, rose 15%, driven by cloud data center and telco spending. The 80% increase in bookings supports growth through the balance of the year, he added.

On the other hand, weaker enterprise spending led to a 22% year-over-year drop in storage segment sales, Caso noted. Some recovery is expected in the second half, the analyst said, citing the company.

Infrastructure software sales were up 5%, consistent with the company's long-term target for mid-single-digit organic revenue growth, Caso said.

The April quarter revenue guidance represented a 2.3% sequential decline but a 3% outperformance relative to estimates, the analyst noted.

Wireless seasonality, Caso said, will be impacted through the year due to the later iPhone launch, but a sharp sequential ramp is likely in the fourth quarter, as Apple returns to a normal launch schedule with the iPhone 13 cycle.

"Net, we think there's some upward bias to estimates given continued capacity constraints, the potential for an enterprise rebound in 2H, and seasonality from iPhone," Raymond James said.

Broadcom Price Action: At last check, Broadcom shares were moving down 1.14% to $438.55.

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