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By Brendan Gilmartin, VP Research and Content

Broadcom (NASDAQ:BRCM) is scheduled to report Q2 2013 earnings after the close of trading on Tuesday, July 23. Results should be available at 4:05 p.m. ET and a conference call will follow at 4:45 p.m. Note that Broadcom's Bluetooth and Wi-Fi combo chip are embedded in Apple's (NASDAQ:AAPL) iPhone, along with a host of other premier smartphones. The results could also influence trading in Qualcomm (NASDAQ:QCOM) due to report on Wednesday.

Outliers and Strategy

Key measures are as follows:

  • Non-GAAP Earnings Per Share -- The Street estimate is $0.68 (source: Yahoo Finance), toward the high end of the projected range. Note that earnings have topped consensus estimates for more than 15 straight quarters.
  • Revenues -- Broadcom said back in April that it expects revenue of $2.1 billion, plus or minus 4%, or $2.016 billion to $2.184 billion. The estimate is at $2.1 billion.
  • Revenues Guidance -- The current consensus is $2.25 billion for the Q2 2013 period. If the low end of the outlook is above this estimate, Broadcom could reverse its recent slide (see my technical review below). If the high end of the range falls short of the consensus estimate, look for a potential retreat toward the November low near $30.00.

Sympathy Plays:

  • Maxim Integrated Products (NASDAQ:MXIM)
  • Marvell Technology (NASDAQ:MRVL)
  • MaxLinear (NYSE:MXL)
  • PMC-Sierra (NASDAQ:PMCS)

Broadcom is now trading at just 10.7x forward earnings, resulting in a PEG ratio of just 0.78. That implies shares are trading at a discount to the estimated earnings growth rate. The options markets is currently pricing in a 3.14% move off earnings, consistent with historical moves. Last quarter, Broadcom shares rose more than 6% after non-GAAP EPS of $0.65 topped the consensus of $0.56, while revenue and guidance also exceeded Street expectations.

Recent News

  • July 1: Lazard Capital lowered its rating on Broadcom from Buy to Neutral, citing lack of near-term catalysts, according to a post on Barron's Online. The firm pointed out that Broadcom's leadership in Wi-Fi presents little opportunity for market share gains, while sales from baseband chips will not take effect until next year.
  • June 5: Susquehanna Financial reiterated a Neutral rating on Broadcom and suggested it may miss consensus estimates, according to a post on Barron's Online. The firm cited weak shipments of the Galaxy 4 smartphone for the potential shortfall.
  • May 14: Broadcom declared a quarterly cash dividend of $0.11 per share, bringing the yield to 1.31%.

Technical Review

Broadcom shares have come under pressure in recent weeks, down 11% from the mid-May highs, en route to the $33.00 long-term support level. Should earnings and guidance disappoint, there is downside risk to the April low near $31.25, followed by the November 2012 low near $30.00. In the event of an upside surprise, there is formidable resistance just above the 200-day SMA near $34.00, followed by $35.00.

Click to enlarge image.

Summary

Broadcom shares have come under pressure in recent weeks amid concerns regarding demand for Apple and Samsung (OTC:SSNLF) products, questions about the outlook for smartphones in 2013, along with broader chip demand. But with shares off more than 10% from the mid-May high, much of the weakness appears priced in. So long as earnings for Q2 meet consensus estimates and guidance is in line, Broadcom could make a run back above the $34.00 level, while the shares are vulnerable to the April low near $31.25 in the event of a weak report. Also keep in mind that earnings from Apple are due about 20 minutes after the Broadcom report and could result in more subdued trading.

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Source: Broadcom Shares Slipping Ahead Of Q2 Earnings