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Can Broadcom (BRCM) Surprise on Q3 Earnings This Time?

Leading semiconductor solutions maker Broadcom Corp.BRCM is scheduled to report its third-quarter 2015 results after the market closes on Oct 26. In the last reported quarter, adjusted earnings missed the Zacks Consensus Estimate by 3 cents for a negative earnings surprise of 4.0%. Let's see how things are shaping up for this announcement.

Key Factors in the Third Quarter

Broadcom continues to drive innovation and engineering excellence across a broad range of communication end markets to help its customers enhance device performance, cut down costs and improve the overall power efficiency. The company is well placed in the fast-growing wired and wireless communications markets, with cutting-edge solutions for a growing number of connected users who are demanding more content and bandwidth. Strong demand for smartphones and tablets are catalysts for the company's growth, and will likely boost the top line.

As customers like Samsung, Cisco and Apple ramp new products such as iPhone6 and the Galaxy series, Broadcom stands to benefit from increased demand for its products. It is also broadening the connectivity business beyond smartphones into adjacent markets and powering with both Denon and Harman Kardon's WiFi home audio systems.

The wearable market constitutes a fast growing segment of the larger Internet of things (IoT) and is expected to be worth $80 billion by 2020. Broadcom's new platform addresses a key issue of battery drain in wearables, translating into huge prospects for the same. In addition, Broadcom is expecting significant customer interest in its 4x4 multiuser MIMO 5G WiFi chip targeted for its retail routers, broadband access gateways and set-top boxes. The wind-down of its cellular base-band business is further expected to reduce by about $700 million in R&D and selling, general and administrative expenses annually, thereby improving the bottom line.

The proposed acquisition of Broadcom by rival semiconductor manufacturer Avago Technologies Ltd AVGO is currently on track. The deal is arguably the largest of its kind in the semiconductor chip industry and would create a behemoth with one of the most diversified communications platforms in the semiconductor industry at combined annual revenues of approximately $15 billion. Although the transaction is expected to be completed by the end of first-quarter 2016, it is likely to have some effect on the impending quarterly results of Broadcom.

Earnings Whispers

Our proven model shows that Broadcom is likely to beat earnings this quarter as it possesses the key ingredients for a success recipe.

Zacks ESP: Expected Surprise Prediction or Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +2.74%. This indicates a likely earnings beat for the shares.

Zacks Rank: Broadcom's Zacks Rank #3 (Hold) combined with a positive ESP makes surprise prediction heavily tilted in favour of an earnings beat. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Apple Inc. AAPL has an earnings ESP of +1.60% and carries a Zacks Rank #2.

Anika Therapeutics Inc. ANIK has an earnings ESP of +2.94% and carries a Zacks Rank #1.

Ardmore Shipping Corp. ASC has an earnings ESP of +13.51% and carries a Zacks Rank #2.

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BROADCOM CORP-A (BRCM): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

AVAGO TECHNOLOG (AVGO): Free Stock Analysis Report

ANIKA THERAPEUT (ANIK): Free Stock Analysis Report

ARDMORE SHIPPIN (ASC): Free Stock Analysis Report

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


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

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