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

| About: Broadcom Limited (AVGO)

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 (NASDAQ: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 (NASDAQ:MIPS), Marvell Technology (NASDAQ:MRVL), MaxLinear (NYSE:MXL), PMC-Sierra (NASDAQ: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 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 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 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


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.

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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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Semiconductor - Broad Line, Earnings
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