How Much Higher Can Broadcom Go?

Double-Digit Gains In Store For Broadcom

With shares of Broadcom NASDAQ: AVGO up sharply in the wake of the Q4 earnings and Q1 guidance investors and traders alike are surely wondering how much higher can the stock go? Based on our assessment of the report, the market fundamentals, and the chart we think this stock could go a lot higher. Not only is the outlook very robust but we see upside potential in the numbers and that may not even matter. The company just announced a fresh $10 billion stock buyback program that will surely help keep shares moving higher in the near to mid-term at least. 

Mixed Results, Strong Guidance Drive Broadcom Higher 

Broadcom had a very strong fiscal 4th quarter driven by robust systemic demand for semiconductors and semiconductor services. The company’s 47.41 billion in revenue is up 14.4% versus last year, 50 basis points better than expected, and last year’s revenue growth was strong at nearly 12%. More importantly, revenue growth is accelerating on a YOY basis and this is not the first evidence of this we’ve seen. Oracle, for one, saw an acceleration of growth as well and we think this could be foreshadowing strength across the tech sector. On a segment basis, sales of Semiconductors rose by 17% while Infrastructure Software sales grew a smaller 8.0%. 

Moving down, the company was able to outperform on the bottom line as well. Broadcom achieved record adjusted EBITDA margin of 60% for the fiscal year and that is seen in the earnings. The $7.81 in adjusted EPS is up $1.50 or almost 24% versus last year and beat the consensus by $0.04. More importantly, the company is expecting revenue strength to continue into the current quarter, the fiscal 1st, and is guiding the market higher. Broadcom is expecting revenue in a range near $7.6 billion versus the Marketbeat.com consensus of $7.2 billion and EBITDA margin near 61.5% or down slightly on a sequential basis. 

Broadcom Ups The Ante For Capital Returns 

Broadcom not only paid out its dividend for the quarter but the board also approved a new buyback program. The new buyback program is worth $10 billion or more than 3.8% of the market cap with shares trading near $625. The buyback program is supported by the company’s strong cash flow which reached record levels this past fiscal year. In terms of the balance sheet, the company’s cash position is up $1 billion sequentially and should continue to improve even with the newly elevated dividend payment and share repurchase authorization. As for the dividend, Broadcom is yielding about 2.6% at current price levels with a 50% payout ratio, a 50% CAGR, and a strong balance sheet. 

The Analysts Are Driving Broadcom Higher 

The analysts rate Broadcom a firm Buy and are driving the share prices higher. A full 22 of the 28 analysts covering the stock have issued a statement since the 1st of the month, most after the earnings release and all include a price target upgrade. The current Marketbeat.com consensus estimate is near $660 or about 5% above recent price action but the high price target, set after the release, assumes 20% of upside is available. 

The Technical Outlook: Broadcom Consolidates At New Highs 

Shares of Broadcom are consolidating after shooting higher following the earnings release. Assuming the market can sustain these levels, we see the consolidation lead into a continuation signal that could have the stock up another $90 or 15% in the next few weeks to months.