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Factors to Consider Ahead of Broadcom's (AVGO) Q2 Earnings

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Broadcom Limited (AVGO - Free Report) is slated to release second-quarter fiscal 2019 results on Jun 13. Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 4.3%.

Past-Quarter Performance

Broadcom had reported mixed first-quarter fiscal 2019 results. Non-GAAP earnings of $5.55 per share beat the Zacks Consensus Estimate of $5.19. The figure improved 8.4% from the year-ago quarter.

Non-GAAP revenues from continuing operations were $5.789 billion, up 8.7% from the year-ago quarter and 6.3% sequentially. The figure missed the Zacks Consensus Estimate of $5.816.

Broadcom Inc. Price and EPS Surprise

 

Broadcom Inc. Price and EPS Surprise

Broadcom Inc. price-eps-surprise | Broadcom Inc. Quote

What to Expect in Q2

The Zacks Consensus Estimate for revenues for the second quarter is pegged at $5.66 billion, indicating an improvement of approximately 12.9% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained unchanged in the past week. The Zacks Consensus Estimate for the quarter under review is pegged at $5.17 per share, suggesting growth of 5.9% from the year-ago reported figure.

Let’s see how things are shaping up for this announcement.                                                                                             

Factors at Play

Broadcomrecently introduced a portfolio of Ethernet switches, BCM8956X, to facilitate emerging automotive applications in particular. Further, the company also began shipping of BCM8988X for in-car networking applications. With the new offerings, Broadcom attempts to simplify operations through robust data management methods which bode well. We believe this will aid the company’s top line in the to-be-reported quarter.

Further, the company’s strong relationships with leading OEMs across multiple target markets have helped it in gaining key insights into the requirements of customers. These insights have enhanced the company’s efficiency and productivity in serving the target markets and customers better. This is likely to aid to upcoming quarterly results.

Broadcom’s expanding product portfolio positions it well to address the needs of rapidly growing technologies like Internet of Things (IoT) and 5G. We believe that the company’s extensive product portfolio is likely to positively impact the to-be-reported quarter’s results.

Furthermore, Broadcom pursues an aggressive acquisition strategy, which in turn fortifies its business model by diversifying end markets.

However, decline in its large wireless customers, semiconductor solutions and lower-than-expected demand in the China business are likely to dampen the growth prospects of the company in the second-quarter.

Further, the company’s leveraged balance sheet and customer concentration continue to be headwinds.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Broadcom has an Earnings ESP of 0.00% and a Zacks Rank #3.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

The Progressive Corporation (PGR - Free Report) has an Earnings ESP of +3.59% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Prologis, Inc. (PLD - Free Report) has an Earnings ESP of +0.52% and a Zacks Rank #2.

Dave & Buster's Entertainment, Inc. (PLAY - Free Report) has an Earnings ESP of +0.15% and a Zacks Rank #3.

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