Apple Supplier Broadcom Has Topped Estimates Again
On June 1, Broadcom, which is expected to get large content gains in the next Apple's iPhone 8, reported strong financial results for its second fiscal quarter 2017 as sales, gross margin and earnings per share all were better than the top end of its earlier guidance. What's more, the company provided above estimate guidance for its third fiscal quarter. Broadcom said that it expects revenue in the range of $4.375 billion to $4.525 billion compared to the average analysts' estimate which was for revenue of $4.27 billion. Also, the company said that it expects a non-GAAP gross profit margin of 62% to 64%.
According to the company, the revenue growth is due to solid growth from its wired segment and a seasonal second half ramp in its wireless segment. As a result, AVGO's shares surged 8.50% on the next trading day (the company reported after the market close). AVGO's shares have already gained 44% year to date, compared to an increase of 8.9% of the S&P 500 Index and an appreciation of 17.1% of the Nasdaq Composite Index at the same period. Furthermore, since the start of 2012, AVGO's stock has gained an astounding 704%. In this time, the S&P 500 Index has increased 71%, and the Nasdaq Composite Index has risen 108.8%. All in all, I was not surprised by Broadcom's excellent results, since I follow the stock for quite a period, and the company has been able to beat the market expectations since I started to follow the stock. In fact, the company has shown significant earnings per share surprise in all its last sixteen quarters, as shown in the table below.
Broadcom Growth Prospects
Broadcom has shown considerable growth in the second fiscal quarter, and it is well positioned for continuous growth in the next few quarters. Revenue increased 18.3% year-over-year to $4.19 billion in the recent quarter, and Non-GAPP earnings per share grew 45.8% to $3.69. What's more, the implied Non-GAPP earnings per share from the company's guidance for the current quarter of $4.01 represent an increase of 8.7% from the second quarter of 2017 and a gain of 38.8% from the third fiscal quarter of 2016. However, in the fourth quarter, Broadcom revenue and earnings could grow even more with the launch of Apple's new iPhone, where Broadcom's content is expected to increase up to 40% per device.
Gross Margin
Broadcom has achieved a record Non-GAPP gross margin of 63.1% in the last quarter, and it expects a Non-GAPP gross margin of 63% plus/minus 1% for the current quarter. In my view, it is quite impressing, that the company has been able to achieve a gross margin of above 60% in all its last nine quarters, as shown in the chart below.
Source: company reports *Q3'17 - estimate
Top Analysts Opinion
It is kind of interesting to observe the reaction of the best performing analysts to Broadcom's recent report. In fact, as much as ten top analysts, according to TipRanks, reiterated or assigned, on the next day after the earnings release, a Buy recommendation on AVGO's stock with a target price range of between $265 to $300 a share compared to the close price on June 2, of $254.53.
Conclusion
Apple's supplier Broadcom delivered above-consensus results for its second fiscal quarter, with broad-based gains across multiple markets. What's more, Broadcom revenue and earnings could grow even more in the fourth quarter with the launch of Apple's new iPhone, where Broadcom's content is expected to increase up to 40% per device. As I see it, despite the already 44% appreciation of it shares year to date, the AVGO's stock still has considerable room to grow.
Disclaimer: I own shares of AAPL and AVGO. This article expresses my ideas and opinions. I believe that the information I have given in this article is from reliable sources and accurate. I ...
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