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Factors Setting the Tone for Broadcom (AVGO) in Q4 Earnings

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

Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters with average positive surprise of 2.25%.

In the last reported quarter, the company reported earnings of $4.98 per share, outpacing 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.

Guidance & Estimates

For fourth-quarter fiscal 2018, Broadcom forecasts non-GAAP revenues of almost $5.4 billion (+/- $75 million). The Zacks Consensus Estimate is pegged at $5.41 billion.

The Zacks Consensus Estimate for earnings is pegged at $5.52 per share, up 20.3% year over year.

The company anticipates double digit year-on-year growth in networking and compute offloading driven by robust demand from cloud and traditional enterprise. However, cyclical headwinds in video access are expected to negatively impact Wired Infrastructure revenues.

The company expects strong demand from large North American OEM customers to drive Wireless Communications more than 25% sequentially.

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 from robust demand from enterprise, cloud storage, datacenters and recovery in HDD demand.

Broadcom expects double digit year-on-year growth in industrial resale. Moreover, strong demand environment for industrial product revenues are likely to grow, which in turn will propel segmental revenues in the fourth quarter.

Notably, the stock has fallen 9.9% in a year’s time, compared with the industry’s decline of 6.2%. The share price movement is likely to have been affected by decline in the company’s large wireless customers, cyclical headwinds in video access and in-line revenue outlook for the fourth quarter.

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

Factors to Consider

Broadcom recently announced its latest 200G Ethernet controller, Thor. It is specifically designed for machine learning, networking, fast-developing Internet of Things (IoT) and data analytics. Broadcom’s Thor is expected to boost network performance and improve server efficiency. We believe this will aid Broadcom’s top-line growth, going forward.

The company also boasts of a broad-based portfolio, comprising set-top box system-on-chips (SoCs), Ethernet products, embedded processors and controllers, RF front end modules, filters, power amplifiers, enterprise storage solutions, and light emitting diodes, among other semiconductor based solutions.

The company is poised well to capitalize on the lucrative IoT market on the back of these aforementioned solutions.

Further, Broadcom’s strong relationships with leading OEMs across multiple target markets have helped it to gain key insights into the requirements of customers. This insight has helped the company to be more efficient and productive in better-serving the target markets and customers.

Based on its expanding product portfolio, the company is well-positioned to address the needs of rapidly growing technologies like 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), is likely to positively impact the to-be-reported quarter’s results.

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

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. However, stocks carrying a Zacks Rank #4 (Sell) or 5 (Strong Sell) 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 -2.78% and a Zacks Rank #4.

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:

Restoration Hardware Holdings Inc. (RH - Free Report) has an Earnings ESP of +1.68% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Science Applications International Corporation (SAIC - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #3. 

Five Below, Inc. (FIVE - Free Report) has an Earnings ESP of +2.63% and a Zacks Rank #3.

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