Investors had expected a lot from Broadcom’s results, and the company delivered.
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Infrastructure and chip maker Broadcom had a strong finish to the week. Shares rallied following a wave of positive analyst notes after the company’s earnings topped consensus estimates.
Broadcom (ticker: AVGO) advanced 1.3% to $498.47 in late afternoon trading Friday.
Investors had lofty expectations for Broadcom heading into earnings, and a result anything short of beating what was anticipated, and an increase in management’s financial forecasts, would likely have been viewed negatively. Overwhelming demand for chips theoretically should let chip companies sell just about every product they can make.
Broadcom delivered on both fronts. The company reported an adjusted fiscal third-quarter profit of $6.96 a share on revenue of $6.76 billion late Thursday.
According to a Barron’s count, at least a dozen sell-side analysts raised their target prices after earnings. Of the analysts that cover the company, 76% rate shares at Buy, 22% have a Hold rating, and the remainder rate it at Sell. The consensus target price is $551.82.
Executives credited strong growth in markets such as cloud computing, and 5G infrastructure, amid a global shortage of chips that has crippled industries ranging from car companies to appliance makers. Enterprise demand has been picking up, and is likely to lead growth in the fiscal fourth quarter, and into 2022, Chief Executive Hock Tan said.
Jefferies semiconductor analyst Mark Lipacis increased his target price to $590 from $550 and reiterated his Buy rating on the shares. In a research note, Lipacis said that the company’s unique visibility into the factors around the chip shortage make the stock less risky.
In the earnings call, executives said that the company was considering a range of options for its cash if Broadcom doesn’t find a suitable acquisition target. That could mean share-boosting tactics such as buybacks, or other means of returning capital. Lipacis said that could lift shares if the company elects to buy back a significant amount of stock.
Evercore ISI analyst C.J. Muse said in a research note that Broadcom looks relatively safe for investors that have concerns that chip stocks will fall prey to a downward cycle in the coming weeks and months.
Muse boosted his target price to $550 from $480, maintained his Outperform rating, and pointed out that the company’s large infrastructure-software business will likely prove more sustainable during any cyclical changes in the chip industry.
Broadcom’s chip business grew 19% to bring in third-quarter revenue of $5.02 billion, compared with $4.22 billion in the year-ago period. The company’s infrastructure software segment rose 10% to $1.76 billion.
Broadcom shares have gained 14% this year, as the S&P 500 index rose 21%. The PHLX Semiconductor index advanced 23% in 2021.
Write to Max A. Cherney at [email protected]
