Seeking Alpha
Long/short equity, momentum, special situations
Profile| Send Message| ()  

By: Brendan Gilmartin

Broadcom (BRCM) is scheduled to report 4Q 2012 earnings after the close of trading on Tuesday, January 29. Results are usually available at 4:05 p.m. EST and will follow with a conference call at 4:45 p.m. EST. Note that Broadcom's Bluetooth and Wi-Fi combo chip are embedded in the iPhone, along with a host of other premier smartphones and could therefore impact the trading in Apple (AAPL) and other broad market indicators.

Outliers & Strategy

Key measures:

  • Non-GAAP EPS: The Street estimate is $0.73 (Source: Yahoo! Finance), toward the mid-point of the projected range ($0.64 - $0.81). Note that earnings have topped consensus estimates over 13 straight quarters.
  • Revenues: Broadcom said back in October it expects revenues between $1.195 bln and $2.10 bln. The estimate is at $2.07 bln. In early December, Broadcom narrowed toward the higher end of the range, or approximately $2.00 to $2.10 billion, citing better-than-expected revenue in the Mobile & Wireless segment.
  • Revenues Guidance: The current consensus is $2.0 bln for the 1Q 2013 period. If the low end of the outlook is above this estimate, Broadcom could make a break higher toward $36.50 (see Technical Review below). If the high end of the range falls short of the consensus, look for a potential pullback toward $34.00.


Sympathy Plays: MIPS Technologies (MIPS), Marvell Technology (MRVL), MaxLinear (MXL), PMC-Sierra (PMCS), and EZchip Semiconductor (EZCH).

Broadcom is now trading at just 11.5x forward earnings, resulting in a Forward PEG ratio of just 0.94, implying the shares are trading at a discount to the estimated earnings growth rate.

Recent News

  • 12/07: Oppenheimer reiterated an Outperform rating and $45 price target on Broadcom, following an upbeat analyst meeting, according to Benzinga.com. The firm noted that Broadcom continues to outperform and gain market share in both the infrastructure and mobile segments.
  • 12/07: Wedbush raised its price target on Broadcom from $39 to $41 and reiterated an Outperform rating on the shares a day after the company met with analysts, according to a post on Benzinga.com. The positive view was predicated in part on market share, solid execution, expansion of new technologies, and heavy investment in mobile.
  • 11/26: Benchmark upgraded Broadcom from Hold to a Buy rating with a price target of $40, according to a post on StreetInsider.com. The positive view is based on growth in the communications-centric chip portfolio and increasing market share.

Technical Review

Despite the positive sentiment surrounding Broadcom, shares are hovering just above key support at $34.00 and the 200-Day SMA near $33.50. Should earnings disappoint, watch those two levels for initial support, with downside risk to $32.00. Conversely, resistance is at $35.00, with room to run toward the recent highs near $36.50. In either case, the recent range-bound activity suggests a breakout in either direction could be in store. (Chart courtesy of StockChats.com)

Summary

Broadcom is coming off a solid quarter, highlighted by an upbeat analyst meeting on December 6, whereby it raised the low end of its quarterly revenue guidance on better-than-expected revenue in the Mobile & Wireless segment. But a tepid earnings release from Apple, questions over the outlook for smartphones in 2013, along with broader chip demand have held Broadcom shares in check. Nevertheless, the sell-side remains upbeat ahead of the earnings release, due in part to increased market share and a solid position in mobile, paving the way for potential upside.

DISCLAIMER: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Source: Broadcom At Near-Term Inflection Point Ahead Of 4Q Earnings