Credit Suisse Discusses Broadcom's Leverage Situation

Broadcom Ltd (NASDAQ: AVGO) reported its FQ3 results ahead of expectations and raised its guidance for FQ4. The EPS upside could be even higher, Credit Suisse’s John W. Pitzer said in a report. He reiterated an Outperform rating on the company, with a price target of $200.

Following Broadcom’s beat and raise, analyst Pitzer revised the EPS estimates higher for 2016 and 2017 from $11.67 to $12.08 and from $13.34 to $14.13, respectively.

Leverage Situation

Pitzer mentioned that although the 2017 EPS estimate had been raised by ~6 percent, there could be more upside in Broadcom “than any other name in our coverage universe.” He added that the upside is on account of:

• GM leverage, as the company optimizes its product portfolio
• OpM leverage, as Broadcom executes on continued M&A synergies
• Lower interest expense, as the Company de-leverages

Wireless Versus Wireline

The only concern area in the quarter was Wired, which accounts for 54.3 percent of revenues, and was sequentially flat and below the guidance of ~2 percent growth. The analyst noted that this was due to supply constraints in STB, which prevented Broadcom from shipping to demand, which is “a high class problem.”

“Wireless (26.5% of Rev) content story at AAPL still on track with Wireless up 27.3% q/q in F3Q and guided up >30% q/q,” the Credit Suisse report stated.

Guidance for both Enterprise Storage and Industrial seem “exceedingly conservative,” and provide “more cushion,” Pitzer commented.

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