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Broadcom: Reason for Optimism?


Is this it for Broadcom (AVGO)? The chipmaker, which is scheduled to release earnings after the close today, has taken a beating in December--its stock is down 6.5% this month, three percentage points more than the 3.5% decline in the iShares PHLX Semiconductor ETF (SOXX)--as investors worry about the sustainability of the chip cycle, generally, and the impact of its offer to buy Qualcomm (QCOM), specifically, on its business.

ON-CI323_broadc_D_20171106084057.jpg Bloomberg News

Credit Suisse analyst John Pitzer and team don't think there's any need to worry. In a note release last night, they write that they expect Broadcom's earnings-per-share to meet analyst forecasts for its fiscal fourth quarter, but that the chipmaker will offer above-consensus first quarter guidance. They also expect Broadcom to earn $19.52 in 2018 and $21.03 in 2019, about 10% more than Wall Street is predicting.

But that's not all. Broadcom looks cheap, Pitzer and team argue. They point out that with Qualcomm, Broadcom is trading at 13.1 times EV/FCF, a 25% discount to its competitors. Without Qualcomm, Broadcom has a 6.7% free-cash-flow yield, well above the 5.5% of its peers, which means that Broadcom could pay a dividend that would result in a 3.9% yield, nearly twice its competitors.

Want to guess what they rate the stock? Yep, they reinstated Broadcom with a Buy rating and a $335 price target. We'll find out in a few hours whether their optimism is justified.

Shares of Broadcom have dropped 0.7% to $259.80 at 1:16 p.m. today, while Qualcomm has risen 0.6% to $65.08. The iShares PHLX Semiconductor ETF has declined 0.2% to $166.42.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Technology , Stocks
Referenced Symbols: AVGO , SOXX , QCOM


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