Deutsche Bank Comments On Investor Meetings With Avago Technologies

In a report published by Deutsche Bank, the firm reports that it recently hosted a number of investor meetings with Avago Technologies (NASDAQ: AVGO) management.

Deutsche Bank said that while no updated financial guidance was given, it found a number of interesting segment-specific take-aways. “Going forward, we expect AVGO's Wired Comms segment (28% of revs) to be an increasingly important driver of total company growth. AVGO's high-speed SerDes ASIC business currently represents 1/3 of segment revenue (~9% of total sales) and is expected to double in the next three years as the co gains share at customers such as Cisco (CSR), Juniper (QFabric) and Hewlett Packard (Procurve). Additionally, the co remains optimistic that its proprietary parallel optics business growth will remain strong (~5% of total sales). Importantly, the ramp of these proprietary businesses should augment AVGO's overall GM%. Finally, management reiterated that its optical component business within this segment is focused on short-range enterprise customers and not long-range telecom customers that have created revenue downside at competitors such as Finisar. Overall, AVGO remains our favorite mid-cap name as we see potential for significant share price appreciation driven by a combination of continued outperformance on rev/EPS growth and valuation expansion. The latter driver can be especially significant as AVGO shares continue to be valued in-line with pure cyclical names (P/E 13x CY11) and at a discount to more similarly growing peers (~20x). As AVGO's growth continues to exceed its peers, we expect this discount to lessen ($40 P/T based on 16x CY11 EPS).”

Avago Technologies closed yesterday at $31.23.