RBC Capital Says to Buy Broadcom Ahead of Earnings

Wireless chipmaker Broadcom Ltd (NASDAQ:AVGO) on Monday received a big price target boost from analysts at RBC Capital Markets, ahead of this week’s upcoming earnings report.

The firm lifted its price target on AVGO from $185 to $190. That new target suggests a 7% upside to the stock’s Friday closing price of $177.16.

RBC Capital notes the company is is positioned to show not just EPS upside, but also revenue upside when it reports its latest quarterly results on Thursday, Sept. 1.

The analyst cites the following upside drivers for the bullish view:

  1. Better AAPL trends, given implied sell through at AAPL was ~44M units (sell-in was 40M) and implied Sept-qtr q/q guide was better than recent trends/expectations.
  2. HDD Inflecting: Aggregate HDD TAM was better in June-qtr and notably higher in Sept-qtr driven by strong hyperscale and gaming demand.
  3. Enterprise: Company expects strong server/hardware data from IBM being an incremental positive for ELX.
  4. Wired: Expect stable to improving underlying trends coupled with alleviating production bottleneck being a positive.

Beyond the latest quarter that ended in July, RBC noted lower interest expenses as an upside lever for EPS, citing how the company cut its interest rate to ~3% from ~3.5% prior. Fundamentally, AVGO remains well positioned to sustain $16.00+ EPS by the full year 2019, and the stock should work to >$200 over the next few years.

Accordingly, the firm reiterated its Top Pick rating on AVGO.

AVGO-2016-08-29

Broadcom shares rose $1.34 (+0.76%) to $178.50 in premarket trading Monday. BRCM has gained nearly 29% since the start of 2016, quadrupling the return of the S&P 500 during the same period.

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