UPDATE: Avago Technologies (AVGO) Upgraded to Top Pick at RBC Capital

RBC Capital upgraded Avago Technologies (NASDAQ: AVGO) from Outperform to Top Pick with a price target of $170 (from $155). Analyst Amit Daryanani sees strong performance in 2016 driven by integration of its merger with Broadcom (Nasdaq: BRCM).

"Our bullish bias is predicated on our belief that AVGO will expand EPS from $9.24 in CY15E to >$16.00 by CY18E driven by multiple levers – BRCM integration, asset divestures, RF ramp-up, cost containment and potential deleveraging. Perhaps more impressively, to achieve $16.00 EPS by CY18 implies 20%+ EPS CAGR for CY15–18 and we estimate only <30% of future EPS growth is predicated on organic revenue dynamics and 70% + is driven by AVGO’s ability to curtail costs, optimize the portfolio, and further deleveraging," said Daryanani.

The analyst added, "Our analysis indicates Avago will generate ~$6.0B of FCF annually by CY18E, providing ample liquidity to deleverage its balance sheet or execute more M&A. While we are cognizant that the markets (and semiconductors specifically) are observing softer demand trends, in our view AVGO has the potential to offset soft demand trends via self-help levers at its disposal."

For an analyst ratings summary and ratings history on Avago Technologies click here. For more ratings news on Avago Technologies click here.

Shares of Avago Technologies closed at $140.20 yesterday.

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