On Feb 5, Zacks Investment Research nominally downgraded
) to a Zacks Rank #2 (Buy) from a Zacks Rank #1 (Strong Buy)
primarily due to marginal downward estimate revisions and flat
share price movement post fourth quarter earnings release.
Broadcom's share prices have more or less remained steady with
minor price variations since the beginning of the year. Despite
the flat trajectory, Broadcom still has the potential to drive
the stock up. The stock is currently trading at a forward P/E of
17.3x and has a long-term earnings growth expectation of 12.1%.
Why the Downgrade?
Over the last 7 days, a solitary earnings estimate for Broadcom
has been revised downward for 2014. This seems to be an
aftereffect of a slightly bearish outlook for the ongoing
quarter, wherein product gross margin on a GAAP basis is expected
to be down 100 basis points to 150 basis points sequentially.
Share prices have also remained flattish following the fourth
quarter earnings release as both revenues and earnings decreased
year over year. Non-GAAP net income was $366 million or 60 cents
per share in the reported quarter compared with $462 million or
76 cents per share in the year-earlier quarter. The downtrend was
primarily attributable to lower revenues and high operating
expenses. Revenues for fourth quarter 2013 were $2,064 million,
down 0.8% year over year.
However, both revenues and earnings comprehensively beat the
respective Zacks Consensus Estimate. Broadcom expects the
broadband momentum to hold steady in the coming quarters, driven
by emerging market penetration and new technology adoption in
developed markets. The company intends to deliver healthy LTE
(Long Term Evolution) revenues in 2014, while focusing on data
center innovation and next generation home video products with
HEVC (High Efficiency Video Coding).
Moving forward, we maintain our long-term Outperform
recommendation on the stock largely due to its inherent growth
prospects. Broadcom is well placed in the fast-growing wired and
wireless communications markets with cutting-edge solutions for a
growing number of connected users, who demand more content and
bandwidth. Broadcom's product leadership, solid financial
performance and strong cash flow generation are its fundamental
Other Stocks to Consider
Other notable companies in the sector that are worth mentioning
Montage Technology Group Limited
NXP Semiconductors NV
ON Semiconductor Corp.
), each carrying a Zacks Rank #2 (Buy).
BROADCOM CORP-A (BRCM): Free Stock Analysis
MONTAGE TECH GP (MONT): Free Stock Analysis
NXP SEMICONDUCT (NXPI): Free Stock Analysis
ON SEMICON CORP (ONNN): Free Stock Analysis
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