Truist analyst William Stein calculates that Broadcom could raise its dividend by over 20% this year.
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The stock market has had a mixed reaction to Broadcom ’s intended $61 billion acquisition of competitor VMware . But one analyst believes fundamentals alone make the company a Buy.
Truist analyst William Stein wrote in a note Friday that the company could be poised to significantly increase its dividend yields.
The analyst reiterated a Buy rating on the stock and raised his price target to $658 from $657. Broadcom (ticker: AVGO
) shares rose 4.4% to $574.77 on Friday.
Stein calculates that Broadcom could raise its dividend by more than 20% this year alone, and is projecting a double-digit dividend growth on a compound annual growth rate (CAGR) over several years. In addition, Broadcom’s current 3% yield is attractive in a volatile market, he added, while margin expansion and capital allocation could continue to fuel earnings growth.
Bolstering his bullish take was Broadcom’s second-quarter revenue and earnings beat. On Thursday, the company posted adjusted earnings of $9.07 a share, above estimates for $8.71 a share, on $8.1 billion in revenue. Analysts polled by FactSet were expecting $7.9 billion in sales.
Broadcom also announced Thursday that it would pay $142.50 a share in cash, to acquire competitor VMware ( VMW
), making it one of the largest tech deals on record.
Broadcom’s stock has gained 8.5% since speculation of its acquisition of VMware began circulating, rising 3.8% after making an official announcement on Thursday. The shares dropped earlier this week, but have since recouped the losses as Wall Street warmed up to the idea.
“We expect modest accretion immediately, 8% accretion medium-term and over 20% accretion longer-term,” Stein wrote on Friday.
Earlier in the week, Citi analyst Christopher Danely hypothesized that any accretion would be offset by a decline in Broadcom’s multiple, given the “conglomerate discount” that acquisitive semiconductor companies get. In addition, VMware has lower margins than Broadcom, he added.
Write to Sabrina Escobar at [email protected]
