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Broadcom (AVGO) to Report Q3 Earnings: What's in the Cards?

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Broadcom Limited (AVGO - Free Report) is slated to release third-quarter fiscal 2018 results on Sep 6.

Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 1.9%.

In the last reported quarter, the company reported earnings of $4.88 per share beating the Zacks Consensus Estimate by 11 cents. The figure improved 32.2% year over year.

Non-GAAP revenues from continuing operations were $5.014 billion, up 20% from the year-ago quarter. The figure was almost in line with management’s guidance and slightly higher than the Zacks Consensus Estimate of $5.003 billion.

Guidance & Estimates

For third-quarter 2018, Broadcom forecasts non-GAAP revenues of almost $5.05 billion (+/- $75 million). The Zacks Consensus Estimate is pegged at $5.06 billion.

The Zacks Consensus Estimate for earnings is pegged at $4.83 per share, up 17.8% year over year.

The company anticipates an increase in demand for networking products from cloud and data centers as well as broadband access products. Wireless Communications revenues are projected to witness a seasonal sequential decline owing to weak demand from large North American customers.

However, the launch of next generation WiFi products is expected to be a catalyst for the segment. Management stated that Enterprise Storage segment will benefit on the back of robust demand from enterprise, cloud storage and datacenters, and recovery in HDD demand.

The company expects mid-single digit sequential growth in industrial product revenues and projects growth in resale. Industrial shipments and resale are likely to grow, which is likely to drive segmental revenues in the third quarter.

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

Factors to Consider

Broadcom is benefiting from strong demand for its wireless solutions. In the last reported quarter, Wireless Communications (26% of total revenues) rose 13% year over year to roughly $1.29 billion. Ramped up shipments to a large Korean smartphone customer was a positive.

The Zacks Consensus Estimate for the Wireless Communications segment revenues are pegged at $1.245 billion.

Coming to the Enterprise Storage (23% of total revenues) increased 63% from the year-ago quarter and 17% sequentially to $1.16 billion. The improvement can primarily be attributed to contribution from the recently-acquired Brocade Fibre Channel switch business.

The Zacks Consensus Estimate for the Enterprise Storage segment revenues are pegged at $1.176 billion.

Broadcom is showcasing a new Non-Volatile Memory Express (“NVMe”) over Fibre Channel (“NVMe/FC”) offering along with Vmware and NetApp in NetApp Booth 1036 at VMworld 2018.

Broadcom’s expanding product portfolio makes it well poised to address the needs of rapidly growing technologies like Internet of Things (IoT) and 5G.

We believe that the company’s extensive product portfolio, which serves multiple applications within four primary end markets (Wired Infrastructure, Wireless Communications, Enterprise Storage, and Industrial & Other), will positively impact the to-be-reported quarter’s results.

Moving forward, Broadcom recently entered into a definitive agreement to acquire CA, Inc for $18.9 billion in cash. The chipmaker intends to enhance its long-term margins with the buyout of CA, a leading IT management software provider.

Broadcom’s move of shifting headquarters to San Jose, CA from Singapore, will aid it to pursue the acquisition of Islandia, NY-based CA. The base-shift is anticipated to make the regulatory environment less complicated for Broadcom. Moreover, the company can reap the benefits of cost reduction as well as lessened competition.

However, the Qualcomm deal still hasn’t materialized despite re-domiciliation. The issue remains a concern even for the ongoing CA agreement.

Broadcom Limited Price and EPS Surprise

Broadcom Limited Price and EPS Surprise | Broadcom Limited Quote

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 -0.37% and a Zacks Rank #3.

Stocks With a Favorable Combination

Here are some companies you may want to consider as our model shows that these stocks have the right combination of elements to post an earnings beat:

Oxford Industries, Inc. (OXM - Free Report) has an Earnings ESP of +0.41% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Guidewire Software, Inc. (GWRE - Free Report) has an Earnings ESP of +0.50% and a Zacks Rank #3.

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