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Avago Technologies (AVGO) Price Target Raised to $78 at Goldman Sachs

May 30, 2014 10:22 AM

Goldman Sachs maintained a Buy rating on Avago Technologies (NASDAQ: AVGO) and increased its price target of $78.00 (from $75.00). The change follows Q2 results. Analyst James Covello noted a strong quarter.

"We continue to expect the stock to outperform: 1) Avago remains well positioned to benefit from the transition to LTE smartphones in China as well as content gains at traditional Tier 1 customers. We highlight that organic gross margin is trending higher as a function of richer product mix within wireless. 2) We expect Avago to execute on LSI cost synergies over the next several quarters, with the potential for expanding gross margin in the LSI segment as well as lower opex. Importantly, we see the pending divestiture of LSI’s flash business to Seagate as an incremental positive (announced 5/29 before the market open), as we believe it will allow Avago to drive opex synergies beyond the current guidance of $200 mn. 3) We believe deleveraging can lower interest expense and drive multiple expansion longer term, as was the case with FSL and NXPI. Valuation remains reasonable at 14X normalized EPS vs. peers at 16X, although we recognize it will take time for Avago to achieve normalized earnings," said Covello.

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 $70.79 yesterday.

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