On Nov 28, we issued an updated research report on Broadcom Limited AVGO.
Broadcom is benefiting from strong demand for its wireless solutions. Higher dollar content at the company’s large North American smartphone customer’s next-gen platform is a key catalyst.
Moreover, completion of the long-delayed Brocade acquisition will boost the company’s position in the storage area networking (SAN) space.
However, gross margin is expected to contract slightly due to unfavorable product mix (higher mix of low margin wireless business).
Broadcom shares have returned 56.9% year to date, outperforming the industry’s rally of 43.4%.
Expanding Total Addressable Market (TAM)
Broadcom’s expanding product portfolio makes it well-positioned to address the needs of rapidly growing technologies like Internet of Things (IoT) and 5G. Broadcom has strong ties with leading OEMs across multiple target markets that will help it to gain key insights into the requirements of customers.
We believe that the company’s extensive product portfolio, which serves multiple applications within four primary end markets (Wired Infrastructure, Wireless Communications, Enterprise Storage, and Industrial & Other), will help it to gain significant market share in the long haul.
Moreover, the company recently launched its first-ever silicon-proven 7nm intellectual property (IP) targeting application-specific integrated circuit (ASIC) platform for deep learning and networking markets.
Acquisitions Strengthen Broadcom’s Portfolio
Acquisitions have played a significant role in deciding Broadcom’s growth trajectory. The addition of Brocade will help the company further penetrate the FC SAN market and garner competitive prowess in the long run.
Broadcom is now targeting Qualcomm Inc. QCOM. The company had offered $70 per share, which was rejected by Qualcomm’s board as it undermined the company’s value.
However, Broadcom remains committed to pursue the Qualcomm acquisition. Earlier this month, the company announced its intent to redomicile in the United States. Broadcom is currently incorporated in Singapore with headquarters there as well as in San Jose, CA.
The redomiciling will help Broadcom to aggressively pursue the Qualcomm bid, which is rumored to be around $77 per share. Moreover, the company is planning to attempt a hostile takeover by placing its chosen members at Qualcomm’s board during the shareholder meeting set for Mar 6, 2018.
Zacks Rank & Other Stocks to Consider
Broadcom currently carries a Zacks Rank #2 (Buy).
Intel Corporation INTC and NVIDIA Corporation NVDA are other stocks worth considering in the broader technology sector. Both sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Intel and NVIDIA is currently projected at 8.4% and 11.2%, respectively.
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