Today, Broadcom (NASDAQ:AVGO) stock is down more than many other tech stocks. However, it's vulnerable to further downside due to its sizeable 60% year-to-date rally. I intend to let it fall at least another 5% or even 10% before considering a long position. Still, I am bullish on AVGO stock for the long term because Broadcom's quarterly results have been pretty solid, overall.
Broadcom has been around since 1961, and it offers semiconductor and infrastructure software solutions. The company is known for supplying chips to Apple (NASDAQ:AAPL).
It's always fascinating to see the market punishing a company even after it beat analysts' consensus EPS forecast. Oftentimes, there are terrific opportunities when this happens. Nonetheless, I'm only taking a bullish view of AVGO after it moves into my "buy zone," which could happen any day now.
Broadcom Maintains Its Earnings Track Record
Here's one of the main reasons I like Broadcom so much. If you take a look at the company's track record of beating Wall Street's quarterly EPS estimates, Broadcom has been amazingly consistent. The company just added another win to that track record, but we'll get into that topic in a moment.
I also like the fact that Broadcom pays a forward annual dividend yield of over 2%, which is higher than the sector average dividend yield of 1.025%. Furthermore, Broadcom has a tendency to raise its dividend payments every four quarters.
So, how did Broadcom fare in the third quarter of Fiscal Year (FY) 2023? I'd say it was a solid quarter for the company. Plus, Broadcom declared a quarterly dividend of $4.60 per share and repurchased 2.9 million shares (that's good because a smaller pool of available shares might raise the AVGO stock price for the long term).
I promised that I would talk about Broadcom's quarterly earnings, and as it turned out, the company reported earnings per share of $10.54. This result surpassed the analyst consensus estimate of $10.43 - not a blowout beat, but still perfectly respectable, in my opinion.
Why Did Broadcom Stock Fall Today?
So far, everything I've mentioned about Broadcom is positive. On the other hand, Broadcom stock is down over 5% today. Clearly, there was either something in Broadcom's results or the company's forward guidance that bothered stock traders.
Broadcom's top-line results weren't objectionable, as the company's quarterly sales increased by 5% year-over-year to $8.88 billion. Moreover, Broadcom beat the consensus revenue forecast by $20 million.
In other words, Broadcom's main quarterly results slightly exceeded Wall Street's expectations. Here's the problem, though. For the current quarter, Broadcom is guiding for revenue of $9.27 billion, which would be up 4% year-over-year. Meanwhile, analysts had called for $9.29 billion in current-quarter revenue.
That's a sales guidance "miss," I suppose. It's not very far below Wall Street's forecast, though; it's nearly in line, really. I feel that the market and Bloomberg are jumping to a hasty conclusion if they're assuming that Broadcom's sales outlook signals "sluggish chip demand." Again, we're talking about a sales outlook that nearly matches what analysts had predicted.
What are the Expectations for AVGO Stock?
On TipRanks, AVGO comes in as a Strong Buy based on 11 Buys and three Hold ratings assigned by analysts in the past three months. The average Broadcom stock price target is $915.08, implying 4.8% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell AVGO stock, the most accurate analyst covering the stock (on a one-year timeframe) is Rick Schafer of Oppenheimer, with an average return of 32.16% per rating and a 93% success rate. Click on the image below to learn more.
Conclusion: Should You Consider AVGO Stock?
Overall, I like Broadcom due to its dividend and the company's excellent track record of beating analysts' quarterly EPS forecasts. Besides, Broadcom just served up another EPS beat and top-line results that were perfectly acceptable, in my opinion.
Now, the market has decided to punish Broadcom for issuing a current-quarter revenue outlook that isn't very pessimistic. I see an opportunity in the works, but AVGO stock needs to fall another 5% or, better yet, 10% after a strong year-to-date rally. Then, if there's a continuation of the share-price drawdown, a long-term investment in Broadcom is definitely worth considering.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.