Case Study: Broadcom (AVGO) stock according to high performing analysts
Key Points
Performance
Broadcom shares fell by 5.56% this week, pushing their year-to-date gains down to 46.71%. This compares favorably to both the S&P 500 and the Nasdaq Composite Index, which are up by 11.98% and 27.47%, respectively, on a year-to-date basis.
Event & Impact
Broadcom posted its second quarter results this week, beating analyst consensus estimates on both the top and bottom lines. During Q2, AVGO’s revenue totaled $8.73 billion, beating Wall Street’s consensus estimate by $20 million. Broadcom's Q2 non-GAAP earnings-per-share came in at $10.32, which was $0.18/share above consensus estimates.
Noteworthy News:
Broadcom shares had experienced a massive run-up in earnings due to the recent success of its peers, who also design and manufacture artificial intelligence related semiconductors. AVGO shares gave back roughly 5% of their recent gains this week; however, during the last month, they've still been up by 30.75%. The company is expected to continue to grow at a high single digit rate moving forward. It pays a 2.27% dividend yield. And, AVGO continues to be generous with its buyback program, repurchasing $3.4 billion worth of shares during Q2.
Nobias Insights
75% of recent articles published by credible authors focused on AVGO shares offer a “Bullish” bias. Four out of the five credible Wall Street analysts who cover Broadcom believe that shares are likely to rise in value and updated their price targets on shares this week after seeing the company’s Q2 results. The average price target from the post-earnings updates that we saw this week was $905.00. Therefore, looking at the most up-to-date credible analyst opinions, it appears that AVGO shares offer upside potential of approximately 11.5% relative to the current $812.00 share price.
Bullish Take AJ Fabino, a Nobias 4-star rated author, said, “Broadcom issued earnings of $10.32 per share, ahead of a $10.08 estimate, on revenues of $8.73 billion, which beat the $8.71 billion estimates, according to Benzinga Pro.”
Bearish Take Ahmed Farhath, a Nobias 4-star rated author, stated, “Over the last 3 months, EPS estimates have seen 18 upward revisions and 3 downward. Revenue estimates have seen 12 upward revisions and 8 downward.”
AVGO Jun 2023
After Nvidia’s (NVDA) and Marvell Technology’s (MRVL) beat-and-raise earnings reports last week that caused their shares to soar on the back of artificial intelligence-related growth, all eyes were on Broadcom (AVGO) this week.
AVGO reported its second quarter earnings results on Wednesday, and once again, beat analyst expectations on both the top and bottom lines. However, unlike its peers, AVGO shares didn’t experience double digit post-earnings rallies. It appears that much of AVGO’s results were priced into the stock, (which had experienced a 30%+ rally during the month coming into its second quarter report).
However, after examining its results, four of the five credible analysts that Nobias tracks who cover AVGO shares increased their price targets and despite its 46.71% year-to-date rally, it appears that Broadcom shares continue to offer double digit upside potential.
Bullish Nobias Credible Opinions:
Andrew Kessel, a Nobias 5-star rated author, touched upon one of Broadcom’s recent bullish catalysts in an article that he published at Proactive Investors this week. Prior to the blowout quarters from Nvidia and Marvell last week, AVGO shares were already headed higher because of news that broke between it and its largest customer, Apple (AAPL), which provided investors with peace of mind knowing that the iPhone maker wasn’t going to cut Broadcom out of its supply chain in the coming years.
“Earlier this week,” Kessel wrote, “Broadcom received a repeat ‘Buy’ rating from UBS analysts after the company announced two multi-year agreements with Apple to supply radio frequency and wireless components and modules.”
“The analysts wrote that the agreement also appeared to quash speculation from earlier this year that Apple would displace Broadcom components from its devices beginning in 2025, although they noted that Apple continues to push more technology in-house to reduce reliance on external vendors,” he added.
So, while it’s true that Apple continues to invest heavily in its own semiconductor assets in an attempt to move more and more of its supply chain under its own control, investors were pleased to hear that this isn’t a threat that Broadcom needs to worry about in the coming quarters.
This sigh of relief turned into an outright bullish fervor surrounding AVGO shares after two of its rivals in semiconductor industry, NVDA and MRVL beat analyst expectations by wide margins, causing their shares to rise by more than 25% and 40%, respectively, last week.
AVGO shares were dragged up by the NVDA and MRVL rallies. During the last month, Broadcom has seen its share price appreciate by 30.75%. This is an unprecedented move by this relatively mature semiconductor. AVGO is a large-cap stock with a market cap of $338.5 billion. However, unlike Nvidia and Marvell, which trade with forward price-to-earnings multiples of 51.6x and 39.3x, respectively, Broadcom is a relative value option for investors in the semiconductor segment, with a forward P/E ratio of just 19.5x. And therefore, coming into its most recent quarter, Broadcom had a lower bar to clear, as far as the growth expectations required to support its valuation multiples went.
AJ Fabino, a Nobias 4-star rated author, covered AVGO’s quarterly results in an article published at Business Insider this week. Fabino wrote, “Broadcom Inc, a global leader in semiconductor and infrastructure software solutions, issued second-quarter earnings which beat Street expectations.” He continued, “Broadcom issued earnings of $10.32 per share, ahead of a $10.08 estimate, on revenues of $8.73 billion, which beat the $8.71 billion estimates, according to Benzinga Pro.”
“The company repurchased 5.6 million shares during the quarter and announced a quarterly dividend of $4.60 per share,” he added. Lastly, Fabino noted, “Broadcom said it anticipates its third-quarter revenue to be about $8.85 billion, edging past estimates of $8.72 billion.”
Bearish Nobias Credible Opinions:
Ahmed Farhath, a Nobias 4-star rated author, covered the market’s expectations for Broadcom’s second quarter results in a recent article published at Seeking Alpha. Farhath touched upon the stock’s history of beating Wall Street’s expectations, stating, “Over the last 2 years, AVGO has beaten EPS estimates 100% of the time and has beaten revenue estimates 100% of the time.”
Looking at last quarter’s results, he added, “The company on March 2 reported Q1 Non-GAAP EPS of $10.33, beating estimates by 17 cents. Revenue of $8.92 billion was up 15.7% from last year and ahead of consensus by $20 million.”
Coming into this quarter, analysts have become increasingly more bullish on shares. Farhath wrote, “Over the last 3 months, EPS estimates have seen 18 upward revisions and 3 downward. Revenue estimates have seen 12 upward revisions and 8 downward.” Looking at Q2 estimates, he said, “The consensus EPS estimate is $10.14 and the consensus revenue estimate is $8.71 billion.”
These figures would represent top and bottom-line growth of approximately 7.5% and 12.0%, relative to last year’s second quarter results of $8.1 billion in sales with $9.07 in non-GAAP EPS.
Sell-side Analysts Opinions
Shares were relatively flat on these Q3 results. AVGO has hovered in the $800 area since reporting them, meaning that this company didn’t experience the same post-earnings rally as NVDA and MRVL. However, that may be due to the stock’s 30%+ run-up into earnings. And, looking at Wall Street’s response to its Q2 report, it appears that AVGO continues to have upside potential ahead of it.
After its Q2 numbers hit, several credible Wall Street analysts that Nobias tracks increased their price target on AVGO shares. According to the Fly on the Wall, “Deutsche Bank raised the firm's price target on Broadcom to $870 from $675 and keeps a Buy rating on the shares post the fiscal Q2 results.” The Deutsche Bank analyst who covers AVGO is Ross Seymore who carries a 5-star Nobias rating.
Christopher Rolland of Susquehanna , a Nobias 4-star rated analyst, also raised his price target. According to the Fly on the Wall, “Susquehanna raised the firm's price target on Broadcom to $910 from $785 and keeps a Positive rating on the shares. The firm said we remain encouraged by Broadcom's optimism around their new long-term deal in wireless and cellular and as they reiterated their mixed signal content.”
Truist analyst William Stein, a Nobias 4-star rated analyst, also came away from the quarterly results with a bullish bias. According to the Fly on the Wall, “Truist analyst William Stein raised the firm's price target on Broadcom to $890 from $700 and keeps a Buy rating on the shares. The company posted a "modest" Q2 earnings beat, though the management also offered more details in AI, including the 70% growth in the business, the analyst tells investors in a research note. In addition to AI, Broadcom continues to do well in many other respects - it's keeping lead times elevated at 50 weeks, its inventory is under solid control, its customer and channel inventory appear lean, and its buybacks are strong, Truist added.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Lastly, Bank of America analyst Vivek Arya, a Nobias 4-star rated analyst, also raised his price target significantly. According to the Fly on the Wall, “BofA analyst Vivek Arya raised the firm's price target on Broadcom to $950 from $800 and keeps a Buy rating on the shares after the company issued a "slight" fiscal Q2 beat and gave a Q3 revenue outlook above consensus. The firm's new target reflects a higher multiple as AI accelerates company growth potential. In a bull case scenario where Broadcom can grow AI exposure to about 25% of sales, and hold growth rates of non-AI assets at previously mentioned levels, the firm sees incremental $2B and $3 upside to its sales and EPS estimates, respectively, the analyst added.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, 80% of credible analysts who cover AVGO shares believe that the company is likely to increase in value. 75% of recent reports published by the credible author community that the Nobias algorithm tracks have also expressed a “Bullish” bias towards shares.
Currently, Broadcom trades for $812.00. The average price target from the post-earnings updates that we saw this week was $905.00. Therefore, looking at the most up-to-date credible analyst opinions, it appears that AVGO shares offer upside potential of approximately 11.5%.
Disclosure: Nicholas Ward is long AVGO. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.