AVGO (AVGO) reports preliminary financial results for the year ended 2012-10-31.
Avago Technologies Ltd. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company.
Avago Technologies Ltd.'s analysis versus peers uses the following peer-set: Texas Instruments Incorporated (NYSE:TXN), Analog Devices Inc. (NYSE:ADI), Infineon Technologies AG ADS (OTCQX:IFNNY), STMicroelectronics N.V.(NYSE:STM), Skyworks Solutions Inc. (NASDAQ:SWKS), LSI Corp. (NYSE:LSI), Hittite Microwave Corp.(NASDAQ:HITT), Vishay Intertechnology Inc. (NYSE:VSH), RF Micro Devices Inc.(RFMD) and TriQuint Semiconductor Inc.(TQNT). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Annual (USD million)||2012-10-31||2011-10-31||2010-10-31||2009-10-31||2008-10-31|
|Revenue Growth %||1.2||11.6||41.0||(12.7)||11.3|
|Net Income Growth %||2.0||33.0||N/A||(177.2)||N/A|
|Net Margin %||23.8||23.6||19.8||(3.0)||3.4|
Avago Technologies Ltd.'s current Price/Book of 3.5 is about median in its peer group. We classify Avago Technologies Ltd. as Harvesting because of the market's low expectations of growth (PE of 15.2 compared to peer median of 19.7) despite its relatively high returns (ROE of 25.4% compared to the peer median ROE of 12.4%).
The company has a successful operating strategy with above median net profit margins of 23.8% (vs. peer median of 11.1%) and relatively high asset turns of 0.9x (vs. peer median of 0.7x). This suggests that the company has a dominant operating model relative to its peers. Avago Technologies Ltd.'s net margin is its highest relative to the last five years and compares to a low of -14.4% in 2007.Economic Moat
The company enjoys both better than peer median annual revenue growth of 1.2% and better than peer median earnings growth performance 2.0%. Avago Technologies Ltd. currently converts every 1% of change in annual revenue into 1.7% of change in annual reported earnings. We view this company as a leader among its peers.
Avago Technologies Ltd.'s return on assets is above its peer median both in the current period (21.2% vs. peer median 8.1%) and also over the past five years (13.2% vs. peer median 6.3%). This performance suggests that the company's relatively high operating returns are sustainable.
The company's gross margin of 54.0% is around peer median suggesting that Avago Technologies Ltd.'s operations do not benefit from any differentiating pricing advantage. However, Avago Technologies Ltd.'s pre-tax margin is more than the peer median (24.7% compared to 11.1%) suggesting relatively tight control on operating costs.Growth & Investment Strategy
While Avago Technologies Ltd.'s revenues growth has been above the peer median (16.8% vs. 7.4% respectively for the past three years), the stock's PE ratio of 15.2 is less than the peer median. This implies that the company's earnings are peaking and the market expects a decline in its growth expectations.
Avago Technologies Ltd.'s annualized rate of change in capital of 13.9% over the past three years is around the same as its peer median of 13.9%. This investment has generated a better than peer median return on capital of 26.5% averaged over the same three years. The greater than peer median rate of return suggest that the company may be under investing in growth.Earnings Quality
Avago Technologies Ltd. has reported relatively strong net income margin for the last twelve months (23.8% vs. peer median of 11.1%). This strong margin performance was accompanied by a level of accruals that was around peer median (5.5% vs. peer median of 6.2%) suggesting that the reported net income is supported by a reasonable level of accruals.
Avago Technologies Ltd.'s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.Trend Charts
Avago Technologies Ltd. designs, develops and supplies broad range of analog semiconductor devices with a focus on III-V based products. The company's product portfolio is extensive and includes 6,500 products in four primary target markets: wireless communications, wired infrastructure, industrial and automotive electronics, and consumer and computing peripherals. Its applications for products in these target markets include cellular phones, consumer appliances, data networking and telecommunications equipment, enterprise storage and servers, power generation and renewable energy systems, factory automation, displays, optical mice and printers. The company was founded in 1961 and is headquartered in Singapore.Disclaimer
The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party's use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you're agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website analytixinsight.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.