Earnings Preview: Broadcom Q2 2014

| About: Broadcom Limited (AVGO)

Summary

Broadcom Corp. (BRCM) is slated to report 2Q 2014 earnings after the close on Tuesday, July 22nd.

Non-GAAP Earnings Per Share (EPS): The Street estimate is $0.61 (range $0.55 to $0.64).

Revenues: Company guidance is a range of $2.0 bln to $2.1 bln. Analyst expectations are to decline 1.8% y/y to $2.05 bln (range $2.03 bln to $2.08 bln).

By Craig Bowles

Overview

Broadcom Corp. (NASDAQ:BRCM) is slated to report 2Q 2014 earnings after the close on Tuesday, July 22nd. The earnings release is expected at approximately 4:05 p.m. EST with a 4:45 p.m. conference call webcast at Broadcom Investor Relations. Broadcom Corporation provides semiconductor solutions for wired and wireless communications. Being a component of the S&P 500 and NASDAQ 100 indices, results can affect futures.

Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share: The Street estimate is $0.61 (range $0.55 to $0.64) (Yahoo! Finance).
  • Revenues: Company guidance is a range of $2.0 bln to $2.1 bln. Analyst expectations are to decline 1.8% y/y to $2.05 bln (range $2.03 bln to $2.08 bln).
  • Revenue Guidance for 3Q 2014: Expectations are to increase 2.0% y/y to $2.19 bln (range $2.03 bln to $2.27 bln).
  • Broadcom insiders sold 1,203,151 shares over the last three months but have bought 128,931 shares over the last year, so the company's executives appear to be taking advantage of the recent rally. (CEO Scott Mcgregor sold another 75,000 shares on July 9th.)
  • Broadcom results are compared to and could impact chip providers, such as Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD), Qualcomm (NASDAQ:QCOM), MIPS Technologies (NASDAQ:MIPS), Marvell Technology (NASDAQ:MRVL), MaxLinear (NYSE:MXL), PMC-Sierra (NASDAQ:PMCS) and EZchip Semiconductor (NASDAQ:EZCH). (Intel produced strong results. AMD missed and blamed weak PC demand.)
  • Broadcom shares have a 1-day average price change on earnings of 5.70%. Options are pricing in an implied move of 3.85% off earnings.

Recent News

  • 07/09 Oppenheimer upgraded Broadcom to Outperform from Market Perform citing margin and cash flow benefits from its planned baseband processor exit, according to a graph on Morningstar.com.
  • 06/19 If the Taiwan dollar is still a leading indicator of semiconductor prices, prices aren't likely to improve much in the near term, according to a graph on Yahoo! Finance.
  • 06/19 Import Price Index: Semiconductor and other electronic component manufacturing for industrialized countries trends lower the last two years, according to a graph by St. Louis Fed.
  • 06/03 Wedbush upgraded Broadcom to Outperform from Neutral and raised their price target to $43 from $30 citing the much-needed plan to sell and wind down the cellular baseband removes their biggest concern for the stock despite a potential risk of market-share losses, according to a story by Barron's.
  • 06/02 Wells Fargo downgraded Broadcom to Underperform from Market Perform on revenue growth concerns; Bernstein raised their price target to $42 on the same news that the company exited the baseband wireless processor chip business, according to a story on Barron's Blogs.

Technical Review

Broadcom has mostly fluctuated around $34 the last two years and most recently is testing the highs of that range after last year's weakness, so fluctuations are turning more chaotic. The June spike was in reaction to a business decision that may or may not have staying power. Recent consolidation around $38 suggests traders are waiting on the earnings release to dictate further price targets. (Chart courtesy of StockCharts.com)

Summary

CEO Scott Mcgregor leading the recent insider selling with the stock back at 2012 highs makes investors question the duration of the stock's recent strength. Intel and Advanced Macro Devices have already reported but have given mixed indications for the sector. Broadcom has beaten estimates each of the last four quarters by 2c to 7c, so probably needs to report at least $0.63 on revenue of $2.06 bln with 3Q revenue guidance on the high side expectations.

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