Broadcom (AVGO) Tops Q3 Estimates But Analysts Divided - Summit Downgrades to Hold While Credit Suisse Says Stock Undervalued
Shares of Broadcom (NASDAQ: AVGO) are up about 1% after the company delivered better-than-expected Q3 results.
Broadcom reported EPS of $6.96 to beat the analyst estimate of $6.85. Revenue for the quarter came in at $6.78 billion versus the consensus estimate of $6.74 billion.
"Broadcom delivered record revenues in the third quarter reflecting our product and technology leadership across multiple secular growth markets in cloud, 5G infrastructure, broadband, and wireless. We are projecting the momentum to continue in the fourth quarter,” said Hock Tan, President and CEO of Broadcom.
Along these lines, AVGO projected Q4 sales of about $7.35 billion to top the consensus of $7.23 billion.
Analyst reaction to AVGO’s Q3 report was mainly positive, but Summit analyst Kinngai Chan moved lower on the rating scale to Hold due to the current industry supply constraint.
“We believe AVGO remains well positioned in the near term to benefit from the improving industry supply in an elevated demand environment. We expect AVGO to continue to grow, driven by increased semiconductor content and ASP due to the transition of technology and industry standards. However, we believe the current industry supply constraint will continue to limit material upside to AVGO’s semiconductor business,” Chan wrote in a client note.
“While orders have remained strong in general, our checks are now indicating that some of AVGO’s end customers have started to reduce double ordering. We believe this could be an early signal that end-demand is normalizing. Our industry checks have indicated normalization of end-demand in WiFi, Chromebooks and the desktop gaming end-markets. We believe it’s only prudent to expect further demand normalization in AVGO’s other markets, such as storage and wireless, in 2022.”
On a more positive note, Credit Suisse analyst John Pitzer believes the stock is undervalued. He reiterated an Outperform rating and a $580.00 per share price target.
“Lack of F3Q Rev upside is disappointing although lingering supply constraints and Mngt’s intent to minimize customer inventory are contributing factors and B:B, while not quantified, improved q/q despite stable lead-times. While not a clean beat/raise, AVGO’s fundamental drivers remain intact (Cloud, 5G, AI, WiFi6, COCSIS 3.1, FTH etc.), the stock remains undervalued and we see three NT catalysts: (1) Software Analyst Day on Nov 9 in NYC, (2) Dividend increase at FY-end to ~$16.70/share from ~$16.06/share – 50% of TTM FCF and (3) Potential for a ~$6 bn buyback (~3% of MrktCap) by yr-end if there is no suitable M&A deal. Risk include macro, the overall cycle, and difficult Wireless compares in FY22 as FY21 captured two iPhone launches,” Pitzer said in a client note.