Broadcom Limited (AVGO) Marching to a $14 EPS in FY17; PT Up to $205 - UBS

June 3, 2016 8:16 AM

UBS analyst, Stephen Chin is increasingly confident in his Broadcom Limited (NASDAQ: AVGO) estimates and raised his PT to $205 from $190. No change to the Buy rating.

Broadcom continues to show solid quarterly execution in its core wireline and wireless segments and remains ahead of schedule on the merger cost synergy target of $750M. He is less concerned with the lumpiness in wireless chip sales (mostly to Apple) since it has a 3-year supply commitment with its big customer.

The analyst believes a key takeaway was Jul-16 wireless sales guidance of up 25% QoQ. This confirms high content growth of 20% in both its FBAR and connectivity chips. They were most impressed with Broadcom's sales growth in its Wireline segment (they estimate up 15%+ QoQ).

Broadcom reported it has supply constraints in Wireline which is a possible reason for Jul-16 segment sales guidance of up only "low-single" digits QoQ. However, the analyst believes this is because networking demand is higher than expected.

References to possible future M&A could also be a positive catalyst Broadcom made a few references to its openness to possible mergers and acquisitions in its prepared remarks.

Broadcom could meet its gross debt to EBITDA target of below 2.0x by late FY16 as F4Q EBITDA of $1.8B (annualized is $7.2B) and gross debt of approx. $14B (including F3Q term loan repayment). This could give Broadcom the financial flexibility to make another acquisition possibly as early as next year. We are not sure what companies Broadcom would consider acquiring in the future, but note its current enterprise value is $73B.

For an analyst ratings summary and ratings history on Broadcom Limited click here. For more ratings news on Broadcom Limited click here.

Shares of Broadcom Limited closed at $154.91 yesterday.

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