Avago: Another Smart Phone Supplier Blasting Through Estimates

| About: Broadcom Limited (AVGO)

Yesterday I highlighted smart phone supplier Omnivision Technologies (NASDAQ:OVTI) as a "buy" before earnings Thursday. The company that produces camera chips for mobile devices reported earnings after the bell Thursday afternoon that beat on the top and the bottom lines and management offered solid guidance as well. The shares are now up more than 20% in after-hours trading Thursday. Another LTE and smart phone supplier that I have profiled before and was up ~10% in trading Thursday is Avago Technologies (NASDAQ:AVGO). These cheap shares have further upside.

Positives from AVGO's earnings report:

  • Reported earnings of 61 cents a share, three cents a share above expectations.
  • Revenues also came in ~$4mm above consensus.
  • Gross margins improved 50bps in the quarter.
  • The company gave forward guidance for revenues to increase 6% to 9% versus consensus calling for 6.7%.

Avago Technologies engages in the design, development, and supply of analog semiconductor devices with a focus on III-V-based products. Its product portfolio is comprised of RF amplifiers, RF filters, RF front-end modules, and other communication products. Its components are found in a variety of manufacturer's smartphones.

4 additional reasons AVGO has upside from just above $37 a share:

  1. Analysts expect revenues to improve more than 10% in FY2014 and the stock sports a five year projected PEG of just above 1 (1.14).
  2. The company has more than $1B in net cash on the balance sheet and the shares also pay a dividend yield north of 2%.
  3. AVGO sells in the bottom third of its historical valuation based on P/E, P/S, P/CF & P/B.
  4. Charter Equity raised its rating to a "Buy" in March and the median price target held by the 18 analysts that follow the stock is $42 a share. Look for further upgrades in the next few weeks on back of this earnings report. This marked the fifth straight quarter Avago beat consensus earnings estimates.

Disclosure: I am long AVGO, OVTI. 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.