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Why Is Broadcom Inc. (AVGO) Up 2.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Broadcom Inc. (AVGO - Free Report) . Shares have added about 2.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Broadcom Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Broadcom Tops Q4 Earnings Estimates, '19 Outlook Strong

Broadcom Limited has delivered stellar fourth-quarter fiscal 2018 results. Non-GAAP earnings of $5.85 per share marginally beat the Zacks Consensus Estimate of $5.58 per share. The figure improved 27.5% from the year-ago quarter and 17.5% sequentially.

Non-GAAP revenues from continuing operations were $5.448 billion, soaring 124% from the year-ago quarter and 8% sequentially. GAAP revenues came in at $5.444 billion. The figure marginally surpassed the Zacks Consensus Estimate of $5.401.

Decline in its large wireless customers and lower-than-expected demand in broadband business due to sluggish carrier spending is a headwind.

Segment Revenues

Wired Infrastructure revenues (41% of total revenues) totaled $2.2 billion, up 3% from the year-ago quarter. The upside was primarily driven by robust demand for cloud data centers and traditional enterprises.

Broadcom also announced that robust growth in networking and compute offloading in cloud data centers, and solid growth spending by enterprise IT positively impacted the segmental revenues. However, lower-than-expected demand in broadband business owing to sluggish carrier spending is a concern. As a result, revenues from broadband were down year over year.

Wireless Communications (31% of total revenues) was down 5% year over year to roughly $1.7 billion. Decline in large wireless customers remains a headwind.

Enterprise Storage (23% of total revenues) surged 96% from the year-ago quarter to $1.3 billion. The improvement was largely backed by contribution from the recently-acquired Brocade Fibre Channel switch business and strong enterprise IT spending.

Industrial & other (5% of total revenues) increased 5.8% year over year to $272 million. Excluding IP licensing revenues, Industrial business continued to grow, highlighting single-digit increase year over year.

Operating Details

Non-GAAP gross margin expanded 510 basis points (bps) on a year-over-year basis to 68.4%. The increase was buoyed by favorable product mix, driven by higher revenues from wired segment.

Non-GAAP operating expenses increased 11.4% year over year to $863 million. Operating margin expanded 520 bps from the year-ago quarter to 52.5%.

Liquidity

As of Nov 4, 2018, cash & cash equivalents were $4.3 billion compared with $4.1 billion in the previous quarter. Long-term debt was $17.5 billion at the end of the fourth quarter, in line with the prior quarter level.

Broadcom generated cash flow from operations of roughly $2.6 billion compared with $2.2 billion in the previous quarter. Capital expenditures totaled $106 million, down from the last quarter figure of $120 million.

During the reported quarter, the company repurchased approximately 6.4 million shares worth $1.53 billion. In fiscal 2018, the company repurchased 31.9 million shares worth $7.258 billion.

Additionally, Broadcom returned $723 million in the form of dividends to shareholders during the fourth quarter. The company also approved a quarterly cash dividend of $2.65 per ordinary share (an increase of 51%, sequentially).

Guidance

For fiscal 2019, Broadcom forecasts non-GAAP revenues of almost $24.5 billion.

Non-GAAP operating margin is anticipated to be 51%, while non-GAAP operating expenses are expected at around $874 million.

The company projects capital expenditures of $550 million for fiscal 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Broadcom Inc. has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Broadcom Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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