Broadcom (AVGO – Free 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 (T – Free Report) , Cisco (CSCO – Free Report) , or Alphabet (GOOGL – Free 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 (AAPL – Free 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 >>