Barclays Expects Strong Q3 Results From Broadcom

Barclays expects another solid quarterly results and outlook from Broadcom Ltd (NASDAQ: AVGO) when it reports its third quarter financials on September 1, driven by RF gains and strong performance in its wired segment.

The brokerage expects third-quarter EPS/revenue of $2.78/$3.75 billion, versus consensus estimate of $2.77/$3.76 billion.

Barclays expects the strong results in wireless and wired infrastructure to offset declines in enterprise storage and industrial. GM is likely to be flat at 60 percent, in line with guidance.

Related Link: Broadcom's Q3 Should At Least Meet Expectations, Says D.A. Davidson

For the fourth quarter, the brokerage sees revenue ahead of the Street's $4.05 billion and expects further upside to profitability, driven by lower interest expense as the company received favorable rates on newly issued debt.

"In terms of segments, the Apple Inc. (NASDAQ: AAPL) ramp driving Wireless is well understood (we model +20 percent Q/Q but likely better), and the company should continue to see strength from classic BRCM Wired. Combined with flat GM (60 percent) and opex (we model $806 million) yields PF EPS better than the Street at $3.18," analyst Blayne Curtis wrote in a note.

Further, Curtis said Broadcom's RF content gains is likely up about 30 percent citing a picture of a bare IP7 PCB surfaced in early August on the Chinese repair site Geekbar.

The analyst now expects CY16 revenue/EPS of $15.22 billion/$11.55 (prior $15.28 billion/$11.02), and CY17 moves to $16.49 billion/$13.44 (up from prior estimate of $16.28 billion/$12.74).

"AVGO is a solid performer YTD but has underperformed Analog names with higher dividend yields (+23 percent vs. TXN +28 percent/LLTC +38 percent). We believe this will reverse into next year as AVGO continues to demonstrate peer-leading revenue and earnings growth at a cheaper valuation," Curtis added.

Curtis maintains an Overweight rating and price target of $185 on the stock, which was flat on the day at time of writing.

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