Broadcom (AVGO) Edges Higher After Topping Q2 Estimates, Analysts Raise PTs on 'High-Quality Growth'

Shares of Broadcom Inc (NASDAQ: AVGO) are up a bit over 1% in pre-open trading Friday after the company reported stronger-than-expected Q2 results.

The California-based company made a profit of $6.62 per share on revenue of $6.61 billion. This is better than the expected $6.43 a share on sales of $6.51 billion. AVGO saw its EPS jump by 29% while sales rose 15%.

"Due to the strength in demand for semiconductors across our multiple end markets, we delivered 20% year-over-year increase in semiconductor revenue," said Hock Tan, President and CEO of Broadcom Inc.

"Consolidated revenue grew 15% year-over-year and operating profit increased 25%," said Kirsten Spears, CFO of Broadcom Inc. "We generated $3.4 billion in free cash flow or 52% of revenue in the quarter, and are expecting free cash flow to remain strong in the third quarter."

For the ongoing quarter the ends August 01, the tech company is calling for sales of $6.75 billion, again higher than the expected $6.59 billion.

"Our third quarter outlook projects this year-over-year growth to sustain, as we continue to see strong demand from service providers and hypercloud."

Mizuho’s Vijay Rakesh praised a strong quarter and guide from AVGO that prompted him to raise the price objective to $520.00 per share from $490.00 per share to reflect strong Broadband, networking, and wireless roadmap.

“AVGO reported a good AprQ and guided to a better JulQ at $6.75B (consensus $6.6B), with solid GMs at 75% as broadband and networking are expected to see double-digit y/y growth. AVGO noted continued strong bookings with lead times potentially extending due to enterprise recovery, as broadband rose 28% y/y (as cable operators drive deployment of DoCSIS3.1 and ramp 4.0) and networking rose 10% y/y (with >400G platforms at hypercloud and service providers investing in 5G infrastructure),” Rakesh said in a note.

“We continue to see AVGO well positioned, with leadership in growing markets driven by secular trends 5G and data center, high margins, and strong FCF. AVGO also highlighted an Enterprise recovery beginning, which should be positive for INTC.”

BofA analyst Vivek Arya echoes Rakesh and highlights “high-quality growth” despite supply issues as he raises the price target to $580.00 per share from $550.00 per share.

He outlines 2 key reasons why he is positive on AVGO following yesterday’s earnings report.

“(1) Strong broad-based growth across AVGO’s semis portfolio with several markets growing 30%+ YoY including PON fiber (+40% YoY, more room to grow as 10G PON deploys), cable modems (+80% YoY, with planned upgrades to next gen DOCSIS 4.0), WiFi for access gateways (+30% YoY) switching (+30% YoY, on strong ramp of Triton and Tomahawk 3 for 400G+ at cloud data centers), 5G metro/edge (+35% YoY, Jericho 2 ramp) and wireless (+48% YoY). While enterprise remained muted (down 15-20% YoY), AVGO has now started to see a recovery in bookings; (2) Best-in-class profitability with 60% EBITDA margin/50% TTM FCF margin, more than capable of supporting best-in-semis 3.2% div yield with leftover dry powder for strategic M&A.”

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