On Dec 26, 2014, Zacks Investment Research upgraded Broadcom Corp. (BRCM) to a Zacks Rank #1 (Strong Buy). Going by the Zacks model, companies sporting a Zacks Rank #1 have a strong chance of outperforming the broader market.
This semiconductor manufacturer was upgraded on the back of its recent dividend hike, share repurchase authorization and optimistic fourth-quarter 2014 revenue guidance.
Why the Upgrade?
Broadcom has been witnessing improving earnings estimates following the recently announced shareholder-friendly policies, upbeat fourth-quarter 2014 outlook and a solid third-quarter earnings beat.
For the upcoming quarter, Broadcom raised the lower end of its guidance for total revenues, expecting the same to lie in the range of $2.075 billion to $2.150 billion.
Also, ushering in good news for its shareholders, the chipmaker hiked its quarterly dividend by 17% year over year to 14 cents per share. The increased dividend will be paid from first-quarter 2015. To further enhance shareholder value, the company announced a share repurchase authorization of $1 billion in 2015. Broadcom’s robust cash generation capacity and commitment to return capital to its shareholders indicate the healthy prospects of the company’s current business model.
Broadcom is well-known in the handheld-device market, as about half the world's tablets and smartphones reportedly use its chips, and the company is attempting to expand its footprint in the network-processor market as well.
In addition, Broadcom has a huge stake in the Internet of Things (IoT) phenomena as it manufactures chips that can connect home devices, wearables and industrial sensors to wireless networks. Broadcom is betting heavily on the IoT market, and is exploring adjacent market opportunities to capitalize on its current portfolio.
Among its recent restructuring moves, Broadcom unveiled plans to wind down its money-losing cellular baseband chip business this July after the company struggled against bigger rival Qualcomm Inc. (QCOM).
The company is currently undergoing a transition from a high-growth phase to a mature and stable growth stage, with a strong focus on enhancing shareholder wealth via dividends and share repurchases.
Broadcom’s primary growth drivers include its focus on product development and innovation, its dominant position in its core businesses and venturing into new, lucrative markets like the IoT. The company’s sustained cost streamlining initiatives will help boost profitability, particularly after the winding down of its unproductive baseband business.
These factors bode well for Broadcom’s future and will enhance investor confidence in the company as a good investment choice and a leading player in the dynamic semiconductor business.
Echoing similar sentiments, the Zacks Consensus Estimate over the last 30 days rose 0.9% to $2.23 per share for 2014, while that for 2015 advanced 3.4% to $2.74 per share.
Other Stocks to Consider
Investors interested in semiconductor industry may consider stocks like Cypress Semiconductor Corporation (CY) and TriQuint Semiconductor, Inc. (TQNT), both carrying a Zacks Rank #2 (Buy).
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