It’s time to break down a popular semiconductor name. Here is the break down on $AVGO, otherwise known as Broadcom.
Current Price: $475.83
52/Wk High: $495.14
52/Wk Low: $292.41
Market Cap: $195.2 Billion
Dividend: $3.60 / 3.06%Yield
Read below for the break down!
Broadcom ($AVGO) is a major semiconductor and semiconductor equipment company that focuses on infrastructure software and semiconductor solutions.
Breaking down the two segments, the infrastructure software segment focuses on networking, wireless, broadband, and server storage technology.
The semiconductor solutions segment focuses on storage area networking, mainframe, cybersecurity, and DevOps technologies.
Broadcom is led by CEO Hock Tan, who has been with the company since 2005 and has led Broadcom since 2006. The management team is made up of executives with prior experience from the likes of SanDisk, LSI, and more.
Looking back, Broadcom has turned out consistent growth, expanding revenues for five consecutive years, increasing gross margin for five consecutive years, growing adjusted EBITDA for five consecutive years, and has expanded free cash flow for five consecutive years.
Furthermore, the company has continued to pay shareholders to stay, expanding their dividend by a 49% CAGR over the course of the last six years.
Digging into the numbers, Broadcom beat Q2 2021 estimates with an EPS of $6.62, better than the analyst’s EPS consensus estimate of $6.43. On a year-over-year basis, EPS expanded by 28.79%.
On the revenues front, Broadcom delivered Q2 2021 revenues of $6.610 billion, representing a steady increase of 15% year-over-year.
Breaking down revenues by segment, the semiconductor solutions segment turned out $4.820 billion in revenues throughout the quarter, representing a solid 20% increase on a year-over-year basis.
Rounding out revenues, the infrastructure software segment turned out $1.790 billion in revenues, representing a moderate 4% increase on a year-over-year basis.
Shifting into income, net income totaled $1.493 billion in Q2, representing a $930 million increase on year-over-year basis. Do note, on a non-GAAP basis, net income jumped by $657 million.
Cash flows also improved in Q2, with cash flow from operations totaling $3.569 billion for the quarter. On a year-over-year basis, cash flow from operations increased by $356 million.
Free Cash flow also improved, with Q2 free cash flow jumping $378 million to a stronger $3.443 billion.
On the EBITDA front, adjusted EBITDA totaled $3.960 billion in Q2, representing a solid year-over-year increase of $751 million from the prior $3.209 billion in 2020.
Management was upbeat.
"Our third quarter outlook projects this year-over-year growth to sustain, as we continue to see strong demand from service providers and hypercloud,” CEO Hock Tan said.
Leadership is bullish going forward, expecting Q3 revenues to total $6.75 billion and adjusted EBITDA to land around 60% of projected revenues.
Shifting into the balance sheet, the numbers are solid.
Total Debt: $40.465 Billion
Total Liabilities: $51.585 Billion
Total Assets: $75.524 Billion
Cash & Short Term Inv: $9.518 Billion
On a valuation basis, Broadcom does trade at a premium.
Price to Earnings: 44.24x
Forward Price to Earnings: 15.86x
Price to Sales: 7.57x
Price to Book: 8.08x
Price to Cash Flow: 16.40x
Management has been effective.
Return on Equity: 19.16%
Return on Assets: 6.22%
Return on Invested Capital: 6.78%
Given the numbers the analysts are bullish with a mean price target of $541.44/share, representing a solid 13.79% gain.
The high price target is $580.00/share, representing a 21.89% upside, while the low price target is $475.00/share, representing a -0.17% downside.
The big money is quite involved as well, with 80.90% of Broadcom being owned by institutions. Top holders include Capital World Investors, The Vanguard Group, and Capital International Investors.
On a technical basis, Broadcom could be presenting opportunity. According to the six-month charts, the MACD is moving with upside momentum within a tight range around 3.12.
The six-month charts are also indicating an RSI of 58.4 and CCI of 78.04, both of which are on the higher end.
In short, Broadcom ($AVGO) is a solid semiconductor company with expanding revenues, a steady dividend, an effective management team, and increasing demand.
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Disclaimer: This is not direct financial advice, simply an opinion based on independent research.