Broadcom Down Even As Earnings Impress; Analyst Ramps PT To $390

Shares in Broadcom (AVGO) dropped 2.26% post-print in Thursday’s extended trading session, despite an in-line July quarter and guiding to a good October quarter at $6.4B (vs consensus at $6.2B).

Specifically, FQ3 Non-GAAP EPS of $5.40 beat Street estimates by $0.16, while GAAP EPS of $1.45 also topped consensus forecasts by $0.33. That’s with revenue surging 5.4% year-over-year and, at $5.82B, beating Street estimates by $60M. Free cash flow came in at $3.07B vs consensus of $2.23B. GMs came in at 74% (better than consensus 72.5%), and ~55% OM.

“We delivered third quarter revenue results in-line with our expectations, driven by healthy demand from cloud and telecom customers, which more than offset the expected reset in wireless,” said Hock Tan, CEO of Broadcom.

“Our outlook for the fourth quarter reflects a strong anticipated ramp in wireless, as well as the continuing surge in demand for networking from cloud and telecom customers, more than offsetting expected softness in enterprise” he continued.

For the next quarter, AVGO is now guiding for revenue of $6.25B-$6.55B ( vs consensus of $6.2B) and EBITDA of $3.74B plus or minus $75M, or 58.5% of revenue at the midpoint.

The company also approved a quarterly cash dividend on its common stock of $3.25 per share, payable on September 30, 2020 to common stockholders of record at the close of business on September 22, 2020.

“AVGO noted JulQ strength from networking and broadband with healthy demand at cloud and telco customers driven by 5G/WFH/Wifi6 trends, and OctQ upside with continued strength driven by wireless up 50% q/q as key customer launches iPhone and networking up ~7% q/q” cheered Mizuho Securities analyst Vijay Rakesh post-print.

He has a buy rating on the stock and boosted his price target from $350 to $390, adding: “AVGO noted plans to pay $3B in debt in the OctQ, but a strong FCF should drive a renewed focus on continued Software M&A to drive shareholder returns.”

The analyst also highlighted that AVGO noted it is ‘NOT’ seeing weakness in its cloud or telco customers, contrary to peer network equipment commentary.

Overall, Broadcom scores a bullish Strong Buy Street consensus with 22 recent buy ratings vs just 3 hold ratings. However the average analyst price target of $362 indicates only limited upside potential from current levels, with shares already up 12% year-to-date.

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