Tag Archives: NASDAQ:AVGO

Broadcom: Zacks’ Bull of the Day Play

Broadcom (AVGOFree Report) is a textbook example of how the Zacks Rank can keep you invested in a growth stock quarter after quarter to ride meaningful long-term gains, or simply to trade the swings along the way. And another “beat and raise” quarter has AVGO back to the top of investor buy lists.Since I first discovered this blue-chip technology “arms dealer” back in 2014 when it was trading $70, and still named Avago Technologies, it has quadrupled revenues to over $13 billion primarily through key acquisitions like LSI Logic and Broadcom, its new namesake.Today we’ll look at why AVGO (they kept the original Avago stock symbol) remains a favorite among institutional investors, which is really the same reason it consistently earns the highest Zacks rank every quarter: earnings momentum.

3 Key Segments

Though Broadcom is generally classified as a semiconductor designer and developer, its solutions serve telecom and enterprise networking customers in the build-out of data centers and high-speed, broadband communications. I can’t say for sure if AT&T (TFree Report) , Cisco (CSCOFree Report) , or Alphabet (GOOGLFree Report) are customers, but I would be surprised if they weren’t.Thus about half of Broadcom’s sales come from the Wired Infrastructure segment which has been seeing steady double-digit growth as these big customers transition to the 100 Gigabit Ethernet protocol. More on this “need for speed” in a moment.Approximately 30% of Broadcom’s revenues come from its Wireless Communications division which serves top-end mobile smart-device makers likeApple (AAPLFree Report) with radio frequency (RF) chips, amplifiers, and FBAR technology filters. Broadcom FBAR (Film Bulk Acoustic Resonator) filters are a form of bulk acoustic wave (BAW) filter that have superior performance with steeper rejection curves compared to surface acoustic wave (SAW) filters.The third major segment at Broadcom is Enterprise Storage, which connects back with many customers from the Wired division and supplies just under 20% of revenues. The company’s products enable the high-speed movement of digital data with a secure connection among multiple PCs, servers and storage devices such as hard disk drives and solid state drives.While AVGO’s Wireless business is “dependent” on Apple, that’s not exactly a bad problem to have. The coming next wave of 5G technology will keep both companies rolling in sales growth.And Broadcom’s largest business, the Wired segment, is very busy meeting the demand of companies building high-speed, broadband networks, especially with the data-hogging loads of video and the storage requirements of the Internet of Things.

Here was part of a recent press release which explains well the infrastructure technology that makes them what I call the blue chip “arms dealer” for the 100G connected world…SAN JOSE, Calif. and SINGAPORE, Dec. 15, 2016 (GLOBE NEWSWIRE) — Broadcom Limited (NASDAQ:AVGO), a leading designer, developer and global supplier of a broad range of digital and analog semiconductor connectivity solutions, today announced shipments of its latest series of heterogeneous knowledge-based processors (KBPs), the BCM15000 (BCM15K), designed for modern network infrastructure including core, edge and data center routers and switches. The BCM15K is a new series of 16nm KBPs which integrates TCAM, SRAM and algorithmic search technology to enable unprecedented levels of forwarding, classification and security for service provider routers and switches. Compared with previous generation KBP products, the BCM15K delivers internet search speeds up to 7.2 billion searches per second (BSPS) and aggregate data transfer rates up to 1 terabit per second (Tbps), which are 8x and 3x improvements, respectively.As global internet traffic will soon surpass a zettabyte on an annual basis and bandwidth-intensive applications such as cloud computing and video streaming continue to expand, next-generation networks would need more advanced routers and switches that are capable of handling terabit bandwidth and performing multi-billion packet search operations per second. Efficiently supporting these applications at these speeds means next-generation routers and switches would need a specialized, high performing KBP that has advanced Layer 2 to Layer 4 packet header processing capabilities enabling service providers to deliver services with QoS and security guarantees.(end of Broadcom PR)After AVGO’s recent “beat and raise” report, the analysts chimed in with a handful all choosing to bump their price target to $210, while Sanford Bernstein and Oppenheimer opted for $215.B. Riley not to be outdone by anyone, raised their PT from $225 to $235.Oppenheimer analysts titled their post-earning report “Christmas Came Early” and summarized their views thus on December 9…We are raising our estimates and PT on AVGO following management’s latest beat/ raise. F4Q (Oct.) revenue/EPS of $4.15B/$3.47 bested consensus’ $4.12B/$3.36E. F1Q (Jan.) revenue/GM guidance of $4.08B/61.5% also easily topped estimates of $3.97B/60.5%. We continue to see AVGO as mis-priced at As I’ve told my followers since September, “you should be accumulating AVGO shares at $165 and under.” That was the rough floor of the consolidation for 3 months. And the idea is paying off. I expect it to continue to pay above $200 in the first half of 2017.Disclosure: I own shares of AVGO.Zacks’ best stocks under $10As a Zacks Rank #1 Strong Buy, today’s Bull of the Day has a short-term 1 to 3-month profit zone. But the Zacks Rank system also leads to longer-term investments. Starting today, you can look inside our lowest-priced stocks with 2X and 3X profit potential plus other private portfolios. Simply click here >>

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Broadcom: Zacks’ Bull of the Day Play

I last covered Broadcom (AVGOFree Report) as the Bull of the Day in early March when shares were trading just above $140 and the merger between Avago and Broadcom kept the former’s stock symbol and the latter’s name for the new combination.

And as AVGO has always done, it’s back to a Zacks #1 Rank after fruitful merger synergies and strong guidance in Wired and Wireless divisions.

Not Your Average Chip Maker

Based in Singapore, Broadcom Limited is $67 billion premier designer, developer and global supplier of a broad range of analog semiconductor devices and digital, mixed-signal and optoelectronics components and subsystems.

Broadcom products primarily serve four target markets: Wireless Communications, Wired Infrastructure, Enterprise Storage, and Industrial services and infrastructure, including the build-out of hyper-fast communications and information technology, commonly called the 100 Gibabit Ethernet.

In computer networking, Gigabit Ethernet (GbE or 1 GigE or simply GE sometimes) is a term describing various technologies for transmitting Ethernet frames at a rate of a gigabit per second, or 1,000,000,000 bits per second.

Another Strong Quarter

Broadcom reported Q3 fiscal year 2016 results on September 1, beating the Zacks EPS consensus by 8%. Net revenue was $3.79 billion, an increase of 7% from $3.54 billion in the previous quarter and an increase of 119% from $1.735 billion in the same quarter last year.

Gross margin was $1.78 billion, or 47% of net revenue. This compares with gross margin of $1.046 billion, or 29.5% of net revenue, in the prior quarter, and gross margin of $884 million, or 51% of net revenue, in the same quarter last year.

Given the more powerful lineup of Enterprise Wired and Mobile Wireless products, plus the cost synergies, analysts raised the Zacks EPS consensus for the first full fiscal year of the combined companies (ending October 2017) from $10.96 to $11.40 in the past 60 days.

That 17.7% EPS growth next fiscal year, reflects a sub-15X P/E multiple for a key Apple (AAPLFree Report) supplier in mobile and strong broadband network builder for top global enterprises.

And that expected earnings growth is built on sales that are projected to climb from $13.25 billion to $16.25 billion (the current Zacks consensus for 2017), representing nearly 22.8% growth.

Strength in Numbers

I have owned and traded AVGO for over two years now and was happy to buy more during the corrections in January and June. My belief was that large-cap Technology stocks would hold up the best in any declines, and outperform afterwards, because of solid earnings growth.

One of the things that has stood out all year was that while many Tech companies were taking a beating, especially those in the Apple supply chain, AVGO shares held up very well. Year-to-date, AVGO is up over 16.55% while the S&P 500 is up only 4.35%, as of October 12.

Broadcom’s focus on multiple target markets and geographies mitigates operating risks and lessens the exposure to volatility in any single market. The Wireless Communications segment (33% of first-quarter fiscal 2016 revenues before the Broadcom acquisition) serves the smartphone, handset and base station infrastructure markets with leading-edge products that include Film Bulk Acoustic Resonator (FBAR) filters, power amplifiers and front end modules.

It supports the wireless industry with a broad variety of RF (radio frequency) semiconductor devices. Additionally the segment also provides a variety of optoelectronic sensors for mobile handset applications.

FBAR (Film Bulk Acoustic Resonator) filters are a form of bulk acoustic wave (BAW) filter that have superior performance with steeper rejection curves compared to surface acoustic wave (SAW) filters. These are essential components of the mobile revolution and the BAW filter market has tremendous growth potential in China owing to the country’s 4G build-out and Wi-Fi band proliferation.

Analysts On Board

Since the company’s Q2 report, where Wall Street learned how well the BRCM acquisition was going, price targets have been moving higher with sales and profit estimates. The average price target over the summer was notching up toward $200.

Here’s a look at notable price target (PT) moves since the Q3 report…

10/4/2016 Sanford C. Bernstein initiated coverage with an Outperform rating and a $215 PT

9/30/2016 JPMorgan Chase reiterated their Overweight rating and $220 PT

9/27/2016 RBC Capital Markets reiterated their Outperform rating and $190 PT

9/23/2016 Canaccord Genuity reiterated their Buy rating and $215 PT

9/20/2016 Susquehanna initiated coverage with a Positive rating and $200 PT

9/14/2016 Mizuho reiterated their Outperform rating and $200 PT

9/9/2016 B. Riley reiterated their Buy rating and $215 PT

9/6/2016 Bank of America reiterated their Buy rating and raised their PT to $215

9/5/2016 Cowen and Company reiterated their Outperform rating and boosted PT to $205

9/5/2016 Barclays reiterated their Overweight rating and boosted PT from $185 to $205

9/2/2016 Morgan Stanley reiterated their Overweight rating and $200 PT

9/2/2016 Robert W. Baird reiterated their Outperform rating and $205 PT

9/2/2016 Jefferies Group reiterated their Buy rating and boosted PT from $190 to $209

9/2/2016 Deutsche Bank AG reiterated their Buy rating and bumped their PT to $205

Many analysts repeatedly talk about what they see as a “big disconnect” between Broadcom’s strong EPS growth and low valuation. That story is still true given the metrics we’ve discussed here.

Cooker’s bottom line: The new AVGO, Broadcom LTD, is one of best Technology names to own in any market environment. Always buy the dips.

Disclosure: I own shares of AVGO for the Zacks Tactical Trader.

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Broadcom LTD: Zacks’Bull of the Day Play

Do not be confused by the new “hybrid” name Broadcom Limited (AVGOAnalyst Report) because this is simply the same old technology powerhouse that Avago investors have known for years — only it’s bigger and better with the completed $37 billion acquisition of Broadcom (BRCM) last quarter.

Based in Singapore, Broadcom Limited is a premier designer, developer and global supplier of a broad range of analog semiconductor devices and digital, mixed-signal and optoelectronics components and subsystems. Broadcom products primarily serve four target markets: Wireless Communications, Wired Infrastructure, Enterprise Storage, and Industrial & Other.

Not Your Average Chip Maker

And AVGO is back to a Zacks #1 Rank after strong guidance about the merger as analysts respond with raised EPS estimates and price targets.

Given the more powerful lineup of Enterprise Wired and Mobile Wireless products, plus the cost synergies, analysts raised the Zacks consensus for the first full fiscal year of the combined companies (ending October 2017) from $9.66 to $11.10 in the past 60 days.

That 15% bump represents over 20% EPS growth in that fiscal year, reflecting a sub-13X P/E multiple for a key Apple (AAPLAnalyst Report) supplier in mobile and strong broadband network builder for top global enterprises.

Strength in Numbers

I have owned AVGO for nearly two years now for the Zacks FTM Portfolio and was happy to buy more during the correction of January. My belief was that large-cap Technology stocks would hold up the best, although that wasn’t true for the widely-held AAPL. My instructions to my followers have been to always buy it anywhere near $120 and we received several great swing trading opportunities in Q4 and Q1.

One of the things that stood out then was that while many Tech companies were taking a beating, especially those in the Apple supply chain, AVGO shares held up very well. Here’s a snapshot of the 1-year performance compared to various other sectors and indexes (chart courtesy of StockCharts.com)…

Broadcom’s focus on multiple target markets and geographies mitigates operating risks and lessens the exposure to volatility in any single market. The Wireless Communications segment (33% of first-quarter fiscal 2016 revenues before the Broadcom acquisition) serves the smartphone, handset and base station infrastructure markets with leading-edge products that include Film Bulk Acoustic Resonator (FBAR) filters, power amplifiers and front end modules.

It supports the wireless industry with a broad variety of RF (radio frequency) semiconductor devices. Additionally the segment also provides a variety of optoelectronic sensors for mobile handset applications.

FBAR (Film Bulk Acoustic Resonator) filters are a form of bulk acoustic wave (BAW) filter that have superior performance with steeper rejection curves compared to surface acoustic wave (SAW) filters. These are essential components of the mobile revolution and the BAW filter market has tremendous growth potential in China owing to the country’s 4G build-out and Wi-Fi band proliferation.

Analysts On Board

Oppenheimer analysts recently noted that while iPhone 6S inventory excess is expected to linger into Broadcom’s fiscal second quarter, the Wireless segment should “trough” this quarter, before rebounding in F3Q ahead of Apple’s iPhone 7 launch where they see 20%-plus content gains in the iPhone 7 vs. iP6S. They concluded…

We see 30%-plus accretion from the acquisition and conservatively see $13-plus of earnings power in CY17 for the combined company as AVGO integrates BRCM into its disciplined business model. We remain buyers here with a $170 target.

Other investment banks raising estimates and price targets included these heavy hitters…

Goldman bumping from $155 to $175

Deutsche from $157 to $180

Bank of America from $180 to $200

And SunTrust analysts last week talked about what they saw as a “big disconnect” between Broadcom’s strong EPS growth and low valuation. They saw another beat-and-raise quarter the result of solid sales execution and even better cost control that they expect will persist.

The analysts raised their 2016 EPS estimate to $11 and 2017 EPS projection to $12.57 while boosting their price target from $168 to $189 based on a 15-times forward multiple. They believe this is conservative given the company’s long-term EPS growth rate of 17%, including acquisitions.

Cooker’s bottom line: The new AVGO, Broadcom LTD, is one of best Technology names to own in any market environment. Always buy the dips.

Disclosure: I own shares of AVGO for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money (FTM) portfolio.

Avago: Zacks’ Bull of the Day Play

Avago Technologies (AVGOAnalyst Report), maker of RF chips for smartphones, optical components for servomotors, and enterprise-level networking equipment, has consistently been a Zacks #1 Rank (Strong Buy) or #2 Rank (Buy) since I first began buying shares at $70 last July.

And the company keeps knocking the cover off of Wall Street’s ball. Whether it’s an average 19% positive EPS surprise for the past 4 quarters or the latest key acquisition, analysts seem to find themselves continually scrambling to raise sales and earnings estimates for the next quarter.

Last week, AVGO shares surged 11.5% after the company reported another strong quarter and their intent to acquire Broadcom (BRCMAnalyst Report), maker of broadband semiconductor solutions, for $37B in cash and stock. Oppenheimer analysts noted that this chip-maker “megadeal appears transformative for AVGO and the industry, creating the third-largest semi company by revenue.”

That “third-largest” quote may be in question now after yesterday’s confirmation that Intel (INTCAnalyst Report) will indeed buy Altera (ALTRAnalyst Report) for $16.7 billion in cash. But I doubt it since Intel probably held the top spot anyway.

Where Did Avago Come From?

The company began as part of Hewlett Packard (HPQAnalyst Report) over 40 years ago, then was spun off as Agilent Technologies. In 2005, KKR and Silver Lake partners took Agilent’s semiconductor group private as Avago Technologies, which later had its IPO in August 2009.

With such an impressive pedigree, one would think it obvious that the company would be loved by investors and viewed with high expectations. But the fact that shares have more than doubled in the past year means that the “inefficient” market missed this gem.

Who Else Was Paying Attention?

I felt lucky to discover the Avago story last year at $70. What put it on my radar was the big institutional buying by a couple of the Capital Group funds after Avago bought LSI Logic last year and replaced that chip company in the S&P 500.

But some other smart investors were all over the growth story much sooner. Here’s what I shared with my Follow The Money subscribers the week of May 18, before the Broadcom deal was announced…

The accessible friend of the thinking investor every week, Barron’s also publishes a quarterly journal for the wealthy investor, Penta. They call it “Trusted Advice for Families With Assets of $5 Million or More.”

This particular issue brings their annual report on the “Best 100 Hedge Funds.” And their cover story profiles #14, the $3.5 billion Lyrical Asset Management. Here’s their intro…

“Andrew Wellington’s Lyrical hedge fund has returned an impressive 28% annually these past 3 years. He does it by buying just a few names a year and quietly holding his 33 stocks until they payoff.”

And here’s part of the interview of particular interest to us…

Barron’s: Seeing as you buy stocks so infrequently, let’s reach a little further back in time and talk about another favorite.

Wellington: We bought Avago Technologies [AVGO], an analog semiconductor maker, in 2013. It makes radio-frequency (RF) chips, for which the end market is smartphones. At the time, there were concerns about growth in iPhone sales, and Apple’s stock price dipped. We liked Avago because more than half of its profits came from non-smartphone markets. They were making optical components that were used largely in servomotors, which are used in any machinery that requires movement, and that business was very stable. Their products had long-term design lives, which gave us more confidence in the long-term earnings power of the business.

Barron’s: Is it still a good long-term deal for investors?

Wellington: Yes, we paid about $38, which was about 12½ times 2014 Street estimates of about $3 a share. That was an attractive multiple for such a high-quality company. We thought earnings were going to double over a five-year period, and that would be close to a 15% annualized earnings growth rate. But they did not earn $3 a share in 2014; they earned $4.90. And this year, they’re expected to earn about $8.50. The company has exceeded even our expectations. In hindsight, we only paid 4.5 times what they’re likely to earn in 2015. It’s an illustration of one of the hidden benefits of owning good companies: Good companies find ways to improve their business over time. We could see it rising 30% more.

A $220 Stock?

On May 28, StreetInsider.com reported on some particularly interesting analyst research…

Avago/Broadcom Deal Synergies Could Drive ~$220 Stock Price, Mizuho Securities Says

Mizuho Securities analyst Vijay Rakesh raised estimates and his price target on Outperform-rated Avago Technologies to $175.00 (from $150.00) following a “solid” quarter and the Broadcom deal.

Rakesh said the Broadcom deal points to a $200+ stock with synergies. “We would note the combined AVGO+BRCM could drive ~$12EPS and $5.75bn of FCF/year,” Rakes said. “Or put another way, long-term on a ~$16.6bn of F16E combined consensus topline, 40% OM and a 5% tax rate, we see AVGO+BRCM EPS at ~$14.70, and at a 15x multiple, the stock is worth ~$220 without buybacks.”

While the analyst EPS estimate bumps continue to roll in this week, expect Avago to maintain a Zacks #1 or #2 Rank for a good chunk of time until they report again… or announce their next deal, which ever comes first.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

Avago Tech: Zacks’ Bull of the Day Play

In early December, Avago Technologies (AVGOAnalyst Report) crushed the Zacks Consensus Earnings and Revenue Estimates mainly due to their wireless communications division, which saw 73% growth quarter over quarter.  Further, growing demand for BAW filters in China and India helped boost growth as well.

Avago Technologies is a leading designer, developer, and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing.  The company serves four primary target markets, Wireless communications, Wired Infrastructure, Enterprise storage, and Industrial and Other.

Increasing Estimates

The higher than expected wireless growth, 4G deployment and adoption of 4G smartphones in China and India, and high volume shipments and content gains due to Apple’s IPhone 6/6+ have caused management to increase revenue guidance for Q1 2015.  Management increased Q1 15 revenue guidance to $1.64 billion, up from the Zacks Consensus Estimate of $1.51 billion due to anticipated tailwinds throughout Q1 2015 from the sales of Apple’s IPhone 6/6+.

Price and Consensus

The table below shows the Price and Consensus Estimates for Avago Tech going through 2015.  As you can see the estimates really began to jump in the mid-part of 2014, and the stock price has subsequently appreciated.

Guidance Increasing

Over the past 30 days, the Zacks Consensus Earnings Estimates for Q1 15, Q2 15, FY 15, and FY 16 have all significantly increased; Q1 15 increased from $1.50 to $1.78, Q2 15 rose from $1.32 to $1.50, FY 15 climbed up from $5.87 to $6.67, and FY 16 increased from $6.39 to $7.07.

Positive Earnings Surprise

Avago has posted a positive earnings surprise for 6 out of the last 7 quarters with a four quarter average positive surprise of 15.33%, indicating that the company tends to solidly beat earnings estimates.  Further, the company has beat the Zacks Revenues Estimates 5 out of the last 7 quarters.

As you can see in the table below, AVGO has seen solid price appreciation in their last 5 earnings beats, and with the solid deployment of the IPhone 6/6+, the expectations are continuing to raise even higher.

Bottom Line

After posting solid fourth quarter 2014 earnings and revenues, management is anticipating strong tailwinds for Q1 2015 due to the following; continued sales from IPhone 6/6+, increasing traction with 4G in China and India, and growing demand for their BAW filters across the world.  Therefore, Avago Technologies is the Zacks’s Bull of the Day, and should see continued growth into the new-year.

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Avago: Zacks’ Bull of the Day Play

Avago Technologies (AVGO – Analyst Report), a Singapore incorporated company with joint headquarters in San Jose, California, is a leading designer, developer, and supplier of a broad range of analog semiconductor devices and digital, mixed signal, and optoelectronics components and subsystems. These innovations are used in wide range of wireless, wireline, and industrial applications.

Avago started as a Hewlett Packard (HPQ – Analyst Report) semiconductor division in the 1960’s and was later a part of Agilent that was spun-off from HP with an IPO in 2009. The $18 billion company makes radio frequency chips that are used in smartphones by Apple (AAPL – Analyst Report), Samsung and other mobile device manufacturers.

Avago products primarily serve four markets: Enterprise Storage (38% of FY 2013 revenue), Wireless Communications (25%), Wired Infrastructure (23%), and Industrial & Other (14%). It has a diversified revenue model with 37% of its FY 2013 revenue derived from China, 20% from North America, 10% from Europe and 33% from the rest of the world.

Solid Q2 Report

On May 29, Avago reported its financial results for Q2 of its fiscal year 2014, ended May 4. Net income for the quarter was $158 million or $0.61 per share, up from net income of $134 million or $0.53 per share for the prior quarter and net income of $113 million or $0.45 per share in Q2 last year.

According to the management, “our wireless business came in significantly above our expectations due to strong product ramps for our FBAR-related products into multiple Asian Smartphone OEMs. We also saw resurgence in Industrial re-sales through our distributors, especially in Europe and Japan”.

On May 6, Avago closed the acquisition of LSI Corporation. Subsequent to the acquisition Avago joined the S&P 500 index, replacing LSI Logic.

Vertical EPS Revisions

In mid-June, my colleague Neena Mishra wrote on Avago as Bull of the Day and noted “As a result of continued solid performance, the Zacks Consensus Estimates for FY 2014 and 2015 have increased to $3.29 per share and $4.51 per share.” The EPS table below shows the most recent consensus estimates and explains whey the stock became a Zacks #1 Rank again this month as analysts kept raising their numbers.

You can also see that these are the kind of implied growth rates that make growth stock portfolio managers salivate. What this table doesn’t show you is where those consensus EPS estimates were before the most recent company guidance. 2014 estimates were raised from $3.01 to $3.31 (+10%) and 2015 estimates were hiked a whopping 31% from $3.50 to $4.59. That’s a powerful bump in the company’s earnings momentum and outlook.

Analysts and Funds Target Higher Prices

After that earnings report and the subsequent estimate bumps, I took a look at this Zacks #1 Rank to see if it had something else that makes it a buy for me: strong institutional interest. I found that the $275 billion Capital Research Investors disclosed a big position of 25.8 million shares (10% of the company) in early May in a 13G filing.

This was likely in reaction to the company being added to the S&P 500 after they closed their acquisition of LSI. But knowing some of the holdings and strategies of Capital Research, a sister fund of the equally large Capital World Investors, this is a growth play for them as well.

In July, Stern Agee analysts reiterated why Avago had been recently added to the firm’s Best Ideas list with a $93 price target, noting that “execution discipline and product leadership make it top holding.”

The analysts hosted investor meetings with AVGO’s CFO and gave these “key takeaways: 1) expect a strong 2H with China builds and marquee phones, no supply chain slowdown, 2) LSI synergies running ahead of time line driving upside GM-OM versus consensus, 3) increasing 2H14-2015 Wireless content as 4G ramp focuses handset OEMs on FBAR as key, and 4) stable HDD, Wired 40G Bi-Di ramps, and hyperscale storage demand, combined with a focus on execution, should make AVGO a top L-T stock. Raising estimates and PT to $93.”

And after Apple’s earnings, Oppenheimer analysts, who have an Outperform rating on AVGO shares, were even more positive. Here’s what they had to say…

“AAPL represents ~15-20% of Avago sales before the acquisition of LSI. The company primarily supplies RF filter and power amplifier components in the iPhone/iPad. Following the LSI acquisition and AAPLs move back to a single SKU for iPhone 6 we believe AVGO could see 30%+ content gains on iPhone 6.”

Bottom line: In a strong semiconductor industry, this is one large cap name I want to own for growth with solid business footholds in both enterprise networking and mobile devices. They would seem to benefit from all dimensions of a more connected world.

Disclosure: I own AVGO shares for the Zacks FTM Portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

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Avago Technologies: Zacks’ Bull of the Day Play

Headquartered in San Jose, CA and Singapore, Avago Technologies Limited (AVGO) is a designer, developer and global supplier of a broad range of analog semiconductor devices and digital, mixed-signal and optoelectronics components and subsystems.

Avago started as HP semi division and was later a part of Agilent that was spun-off from HP. It was spun-off from Agilent in 2005 and had its IPO in 2009. Avago is currently the 9th largest semiconductor company (excluding memory business) in the world. The company makes radio frequency chips that are used in smartphones by Apple, Samsung and other mobile device manufacturers.

Avago products primarily serve four markets: Enterprise Storage (38% of FY 2013 revenue), Wireless Communications (25%), Wired Infrastructure (23%), and Industrial & Other (14%). It has a diversified revenue model with 37% of its FY 2013 revenue derived from China, 20% from North America, 10% from Europe and 33% from the rest of the world.

Solid Second Quarter FY 2014 Results

On May 29, Avago reported its financial results for Q2 of its fiscal year 2014, ended May 4.  Net income for the quarter was $158 million or $0.61 per share, up from net income of $134 million or $0.53 per share for the prior quarter and net income of $113 million or $0.45 per share in Q2 last year.

According to the management, “our wireless business came in significantly above our expectations due to strong product ramps for our FBAR-related products into multiple Asian Smartphone OEMs. We also saw resurgence in Industrial re-sales through our distributors, especially in Europe and Japan”.

On May 6, Avago closed the acquisition of LSI Corporation. Subsequent to the acquisition Avago joined the S&P 500 index, replacing LSI.

On June 5, AVGO announced a quarterly cash dividend of $0.29 per share.

Positive Earnings Estimates Revisions

As a result of continued solid performance, the Zacks Consensus Estimates for FY 2014 and 2015 have increased to $3.29 per share and $4.51 per share, from $3.07 per share and $3.68 per share, 30 days ago. The chart below shows the recent positive earnings momentum for the company.

Solid Industry Outlook

Semiconductor industry is currently ranked 42 out of 265 Zacks industries (top 16%). With rising earnings estimates, companies in this space are likely to outperform the broader markets in the coming months.

Zacks Initiates Coverage

On May 30, Zacks initiated coverage on Avago with an ‘Outperform’ recommendation.  Per Zacks Investment Research report “Avago expects to further strengthen its position through organic growth across the industry verticals and increased market penetration buoyed by the LSI acquisition. In addition to cost synergies from a combined resource pool, the acquisition is likely to improve the operating margin and create greater scale to further drive innovation”.

The Bottom Line

With a strong industry outlook and rising earnings estimates, Avago looks set to reward investors in the coming months.

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