Broadcom (AVGO) Tops Q4 Earnings and Revenue Estimates, Prompting Analysts to Raise PTs

Broadcom (NASDAQ: AVGO) reported higher-than-expected earnings for the fourth quarter ending November 01. The company posted adjusted EPS of $6.35 a share on revenue of $6.47 billion.

This is higher than the Street consensus of $6.25 a share on revenue of $6.43 billion. AVFO said that semiconductor sales grew 6% on an annual basis to $4.83 billion, while infrastructure software sales soared 36% to $1.64 billion.

“We concluded the year with strong fourth quarter results driven by continued demand for networking from cloud and for broadband from service providers as well as the significant ramp in wireless, even as enterprise demand remained soft. Our infrastructure software segment continued to be stable and delivered solid results," said Hock Tan, President and CEO of Broadcom.

The company delivered a beat on the revenue guidance as well as it now expects to register sales of $6.6 billion in revenue, higher than the $6.52 billion estimate from analysts.

"Our first-quarter revenue outlook, which projects continued overall strength, is expected to show 13% year-over-year growth, all organic," Tan said.

AVGO also approved a quarterly cash dividend of $3.60 per share, representing an increase of 11% compared to a quarter ago.

Still, shares of AVGO fell 2.7% in pre-open as investors were disappointed that the company did not provide guidance for per-share earnings.

In separate news, Broadcom reported a series of leadership changes. Tom Krause will become President of Infrastructure Software Group, Charlie Kawwas is new Chief Operating Officer while Kirsten Spears will become Chief Financial Office.

"Through a series of strategic acquisitions and a steadfast commitment to R&D, Broadcom has grown to be one of the world's leading technology companies. The leadership appointments announced today underscore the Board's focus on driving the long-term growth and sustainability of Broadcom,” said Henry Samueli, Chairman of the Board of Broadcom.

Analysts from at least two firms raised the price target on AVGO, following a beat on revenue and earnings. Vijay Rakesh, managing director at Mizuho, raised the price objective to $460.00 per share from the previous $425.00, citing higher estimates.

“AVGO reported a good OctQ and guided to a better JanQ at $6.6B (consensus $6.5B). AVGO noted OctQ strength from wireless ramps with iPhone as well as continued networking and broadband demand from cloud and service providers, and JanQ upside with further acceleration in wireless expected up ~50% y/y with peak iPhone ramps and continued broadband strength,” Rakesh wrote in this morning’s note.

He also added that announced management changes reflect the company’s focus on software products.

“With industry-leading GMs/OM at ~74%/56% and FCF/year ~$11-12B, we believe software will be a key focus with M&A on the horizon and former CFO Tom Krause now leading infrastructure software,” said Rakesh.

Similarly, AVGO saw its price target go from $430.00 to $470.00 at Rosenblatt Securities.

“Another solid beat and raise by Broadcom driven by networking/cloud, wireless (iPhone), and broadband in an environment, given outlook/visibility, that is expected to be strong in semi's (excluding enterprise) and stable in infrastructure software. We love Mr. Tan's attitude of you-order-the-chip-you-own-it, which limits double-ordering and, by the way, who else has that clout in standard semi's to demand this?,” Rosenblatt analyst Hans Mosesmann wrote in today’s note.

Mosesmann also praised the management changes the company unveiled.

“Interestingly, Broadcom announced new leadership promotions from within with a new CFO, new head of operations, and head of a new Infrastructure S/W Group (Tom Krause, formerly CFO), which shows how deep the company's bench is and, given the incremental transparency, could lead to the Street giving AVGO a valuation kick.

Both Rakesh and Mosesmann rates AVGO as “Buy”.

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