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Broadcom (AVGO) Looks Promising Right Now: Should You Hold?

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Broadcom Limited (AVGO - Free Report) has outperformed the industry in the past one month. Shares of Broadcom have gained 10.2% compared with the industry’s growth of 8.7%. Its price performance is backed by an impressive earnings surprise history. The company surpassed earnings estimates in each of the trailing four quarters, recording an average beat of 2.25%.

Broadcom Limited has put up modest third-quarter fiscal 2018 numbers. Earnings of $4.98 per share beat the Zacks Consensus Estimate by 15 cents. The figure improved 21.5% from the year-ago quarter and 2% sequentially.

Non-GAAP revenues from continuing operations were $5.066 billion, up 13.4% from the year-ago quarter and 0.9% sequentially. GAAP revenues came in at $5.063 billion. The figure was almost in line with management’s guidance and the Zacks Consensus Estimate of $5.060 billion.

The company has a long-term EPS growth rate of 13.2%.

Growth Drivers

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

Broadcom also announce volume shipments of its BCM43684 Max WiFi 802.11ax SoC. The new product features IEEE 802.11ax specification and the upcoming 802.11ax certification. Designed for the residential Wi-Fi market, Max WiFi chips are being deployed by NETGEAR with its Nighthawk product line.

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. (CA - Free Report) 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. This relocation is anticipated to ease the regulatory environment for Broadcom. Moreover, the company can reap the benefits of cost reduction as well as lessened competition.

Strong Liquidity

As of Aug 5, 2018, cash & cash equivalents were $4.1 billion compared with $8.2 billion in the previous quarter. Broadcom generated cash flow from operations of roughly $2.2 billion compared with $2.3 billion in the previous quarter.

During the quarter, the company repurchased approximately 24 million shares worth $5.38 billion. It currently has $6.3 billion remaining under the share repurchase authorization. Additionally, Broadcom returned $754 million in the form of dividends to shareholders during the third quarter. The company also approved a quarterly cash dividend of $1.75 per ordinary share.

Last Words

A successful investor understands the importance of retaining well-performing stocks in the portfolio at the right time. Indicators of a stock's bullish run include a rise in share price and strong fundamentals. Though there may be some concerns regarding the stock but they are transitory in nature. Hence, considering these factors, investors are suggested to grasp on to this Zacks Rank #3 (Hold) stock.

Key Picks

NetApp, Inc. (NTAP - Free Report) and Salesforce.com Inc. (CRM - Free Report) are stocks worth considering in the broader technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp, Garmin and Salesforce have a long-term EPS growth rate of 14.1% and 25%, respectively.

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