Avago Technologies: A Blue-Chip Gem For The Holidays
- Avago Technologies has more than tripled since I identified it as a great play on the huge LTE rollout happening in this country.
- The company continues to hit on all cylinders and recently delivered a stellar quarterly earnings report.
- Despite the huge run up in the shares of this blue-chip gem, the stock still sports an attractive valuation given its continued growth prospects.
Update: Avago Technologies - Impressive Fourth Quarter And More Room To RunSoid Ahmad • Dec. 5, 2014
- Avago posted revenue and EPS growth, thanks to iPhone, LG G3 and cost synergies related to LSI’s acquisition.
- The stock still has more room to run amid FBAR opportunity in China and growth of LSI's storage business.
- It was mentioned in the piece following Microchip’s warning that Avago is shielded from soft demand in the semiconductor industry and will beat earnings consensus estimate.
Avago Technologies: This Outperforming Stock Can Still Deliver More Upside
- Avago Technologies is restructuring its business in order to improve earnings performance by selling underperforming divisions and acquiring potential performers.
- The company will benefit from a growing market for FBAR products and Chinese LTE smartphones.
- Avago trades at a premium valuation, but the company is expected to outperform the broader industry, making it a good bet.
Why An Expensive Avago Technologies Is Still A Good Bet
- Avago Technologies trades at an expensive valuation after tremendous gains this year, but its premium valuation seems justified.
- Avago's earnings are expected to grow at an improved pace going forward, and its supplier relationship with Apple and Samsung should help it achieve the same.
- Avago's other end markets are also gaining traction, especially the fiber optics business.
- Avago Technologies net income from continuing operations increased to $428 million from $233 million reported in comparable period a year ago.
- The stock has rallied close to 70% since the beginning of 2014, backed by strong performance of previous quarters and is now up 122% over the last twelve months.
- The guidance from Avago for the Q4 FY14 has been revised and the company is expecting a 18-22% increase in revenue while the gross margin is expected to remain flat.
- Avago beat on both revenue and EPS with strength across the core segments.
- Wireless continues to deliver as demand from the Chinese OEMs offset the weakness in Samsung.
- Wired and enterprise showing steady growth. Free cash generation on track.
- RF component, optical fiber, and storage markets are expected to grow in coming years.
- Avago will capitalize on industry growth due its FBAR products, rising content per device, and IP strength.
- Acquisition of LSI is expected to bring cost and product synergies.
- Avago is priced cheaply on forward-earning basis, and thus it holds valuation growth potential. Buy ahead of earnings to capitalize on potential revenue beat and strong outlook.
Why Avago Technologies Stock Is A Good Investment Opportunity
- Avago's stock still has plenty of room to move up.
- Avago has compelling valuation metrics and very strong earnings growth prospects.
- Avago's stock is ranked first among all S&P 500 tech stocks, according to Portfolio123's "All-Stars: O'Neil" powerful ranking system.
Avago Definitely Getting Some Benefit Of The Doubt
- Buying LSI gives operations-focused Avago management a fat target for cost cuts and margin leverage.
- Wireless remains a good growth opportunity and LSI does add some complementary assets in networking.
- Significant margin synergies and improvements already seem to be in the price of Avago shares, making it more difficult to see the undervaluation argument today.
Avago Technologies: Bullish In The Wake Of Its Recent Dividend Increase
- On Thursday, June 5, Avago Technologies announced it would be increasing its quarterly dividend by 7.4%.
- Avago's wireless segment helped boost the company's most recent earnings performance which beat estimates by $0.08/share.
- The company's net income, cash on hand, and its upcoming dividend distributions could demonstrate significant long-term growth especially if its presence in both Europe and Asia remains steady.
- Avago's acquisition of LSI Corporation gives it exposure to enterprise storage and connects it with tech giants such as Intel and Cisco.
- Wireless communications make up 48.4% of Avago's revenue, which is important with the growth of smartphones across the world.
- The company has very little debt and its financial ratios put it above its competitors.
Yesterday, 6:01 PM
- Apple suppliers Cirrus Logic (NASDAQ:CRUS), NXP (NASDAQ:NXPI), Skyworks (NASDAQ:SWKS), Qorvo (NASDAQ:QRVO), and Avago (NASDAQ:AVGO) are up AH after the tech giant blew away FQ1 estimates on the back of 74.5M iPhone sales (+46% Y/Y and above forecasts of ~66-67M). iPad sales of 21.4M (-18%) were roughly in-line
- CRUS +2.9% to $26.79. NXPI +1.5% to $79.20. SWKS +1.3% to $82.60. QRVO +1% to $74.48. AVGO +2.7% to $107.60.
- Cirrus and Qorvo report tomorrow, and NXP on Feb. 4. Skyworks posted an FQ1 beat and offered strong guidance last week.
Fri, Jan. 23, 1:03 PM
- After barely moving in AH trading yesterday in response to its FQ1 beat and strong FQ2 guidance, Skyworks (SWKS +2.3%) has risen above $81 today as a flurry of bullish analyst reactions arrive. Rivals/fellow iPhone suppliers Qorvo (QRVO +4.8%) and Avago (AVGO +1.6%) are heading in the same direction.
- Brean's Mike Burton, hiking his Skyworks target by $22 to $92: "The [FQ1] upside was predominantly driven by the Integrated Solutions segment as Apple's iPhone 6/6+ ramped ... we believe LTE growth in China and several new model ramps (Samsung Galaxy S6 amongst others to be unveiled in Barcelona) coupled with Skyworks Solutions less seasonal Broad Markets business is driving the better-than-seasonal guidance."
- Burton also thinks Skyworks is on its way to achieving a 50% gross margin (up from FQ1's 46.7%), and notes inventory days (58) were down by 15 Y/Y.
- Canaccord's Mike Walkley: "We believe Skyworks' diverse analog portfolio is enabling content share gains with its smartphone customers. Further, we anticipate Skyworks' share gains in markets such as WiFi 802.11ac, wireless infrastructure, and the IoT market are also driving strong growth trends." His FY16 (ends Sep. '16) EPS estimate has been hiked by $0.66 to $5.89.
- On the CC (transcript), CEO David Aldrich noted Skyworks' non-mobile design wins include a GM telematics platform, Cisco home gateways, ZigBee connectivity modules for Philips/LG smart light bulbs, Amazon's Echo and Fire TV devices, and a DirecTV set-top. China's Xiaomi has joined Apple and Samsung as a major mobile client.
- Qorvo reports on Jan. 28.
Thu, Jan. 8, 4:18 PM
- Hit hard on Tuesday amid a market rout, chip stocks have more than made up for it today: The Philadelphia Semi Index (SOXX +3%) handily exceeded the Nasdaq's 1.8% gain. The index posted a 1% gain yesterday.
- Micron (MU +4.9%) has been one of the standouts, more than recouping yesterday's post-earnings losses. Ditto Freescale (FSL +9.2%), which benefited from a Deutsche target hike, and Marvell, which got a lift from an MKM note. Others: NVDA +3.8%. NXPI +4.7%. AVGO +5%. SWKS +4.5%. CY +6.1%. CODE +5.9%. CAVM +5.2%. SWKS +4.5%. SLAB +4.5%. KLIC +3.8%. SMTC +3.6%. ATML +3.7%. FCS +4.2%. TSEM +4.2%.
- As is their custom, both chipmakers and their clients have been unveiling plenty of new products at CES.
- ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Thu, Jan. 1, 2:19 AM
- Dow: INTC +41%; UNH +35%; HD +28%; CSCO +25%; MSFT +25%.
- S&P 500: LUV +125%; EA +106%; EW +95%; AGN +92%; AVGO +91%.
- Nasdaq: AAL +112%; EA +106%; AVGO +91%; GMCR +78%; ILMN +68%.
Dec. 9, 2014, 8:07 AM
Dec. 4, 2014, 12:14 PM
- Avago (AVGO +7.7%) has soared above $100 after beating FQ4 estimates, reporting a stronger-than-expected gross margin, and providing above-consensus FQ1 guidance.
- RF component peers Skyworks (SWKS +4.2%), RF Micro (RFMD +3.9%), and TriQuint (TQNT +4%) are also up, as is fellow iPhone supplier Cirrus Logic (CRUS +2.6%). Cirrus recently sold off after Deutsche cut its calendar Q1 iPhone production forecast.
- On its CC (transcript), Avago noted wireless growth (+73% Q/Q and +83% Y/Y) was "largely driven by the ramp of a new smartphone generation and a large North American smartphone OEM" (undoubtedly Apple).
- Avago added it also saw strong demand for FBAR filter-related products (gaining share due to 4G RF requirements) elsewhere, with demand from Chinese 4G phone OEMs particularly strong. Over 80% of wireless revenue is now FBAR-related.
- Avago expects wireless revenue to be "flat to perhaps slightly down" Q/Q in seasonally weak FQ1, with strong demand from Apple (referred to once more as "a large North American smartphone OEM") offsetting seasonal declines elsewhere. The company notes it remains "very capacity-constrained," and has been making investments to deal with the issue.
- At least 10 sell-side firms have hiked their targets.
Dec. 3, 2014, 5:39 PM
Dec. 3, 2014, 4:35 PM
- Avago (NASDAQ:AVGO) expects FQ1 revenue from continuing ops to be flat to up 4% Q/Q; that implies a range of $1.59B-$1.65B, above a $1.51B consensus.
- FQ4 gross margin was 58%, up from 57% in FQ3 and 51% a year ago, and above guidance of 56% (+/- 1%). FQ1 GM guidance is at 57.5% (+/- 1%).
- Wireless revenue, boosted by iPhone-related sales, rose 73% Q/Q and 83% Y/Y, and made up 39% of total revenue. Enterprise storage (a product of the LSI acquisition) rose 15% Q/Q, and was 29% of revenue. Wired infrastructure (boosted by the PLX acquisition) rose 1% Q/Q and 43% Y/Y, and was 22% of revenue. Industrial/other fell 2% Q/Q and rose 13% Y/Y, and was 10% of revenue.
- Thanks to cost cuts and the sale of the flash storage and Axxia (network processor) units, opex was 18.9% of revenue, down from 23.8% in FQ3 and 19.6% a year ago. In addition, opex is expected to decline by $2M in FQ1 to $301M.
- FQ4 results, PR
Dec. 3, 2014, 4:09 PM| 4 Comments
Dec. 2, 2014, 5:35 PM
Nov. 26, 2014, 2:52 PM
- Chip stocks are outperforming after Analog Devices (ADI +5.2%) beat FQ4 estimates and offered in-line FQ1 guidance. The Philadelphia Semi Index (SOXX +1.9%) has made new highs.
- Notable gainers include many analog/mixed-signal and telecom IC firms: TXN +3%. LLTC +2.7%. SMTC +3.1%. ISIL +3.3%. SWKS +3.7%. AVGO +2.9%. OVTI +3.2%. FSL +3.1%. EZCH +2.5%. XLNX +2.3%. ALTR +2.1%. MX +4.3%. PMCS +2.7%. BRCM +2%.
- On its CC (transcript), ADI noted its telecom equipment chip sales are holding up well in spite of weak capex, aided by the fact its dollar content for 4G base stations is "at least 20% to 30% better" than for 3G base stations. The company also mentioned its lead times were stable in FQ4.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Nov. 7, 2014, 3:18 PM
- Skyworks (SWKS -3.7%) has received at least seven target hikes since delivering above-consensus FQ1 guidance yesterday afternoon and upping its dividend. But shares are nonetheless seeing profit-taking following a huge 2014 rally. Peers RF Micro (RFMD -4.4%), TriQuint (TQNT -4.1%), and Avago (AVGO -3%), each of which has also fared well this year, are also selling off.
- Needham (target hiked to $70) notes FQ4 results benefited from "broad-based demand drivers including content gains at multiple smartphone OEMs, the LTE ramp in China, the 3G upgrade cycle in emerging markets, multi-stream 802.11ac [Wi-Fi] deployments and [high-power amplifier] penetration across multiple vertical end markets." It also observes management "expects revenue will continue to grow at a rate faster than the industry in F1Q15 and FY15 overall."
- Oppenheimer declares the RF component boom cycle to be in its early innings. Pac Crest thinks Skyworks' Apple sales are offsetting Samsung weakness, and is upbeat about strong non-mobile demand. "Channels remain lean and inventory build suggests good multi-quarter visibility," says BofA/Merrill.
- Shares currently go for 14x the pre-earnings FY15 (ends Sep. '15) EPS consensus exc. net cash; the consensus should go up post-earnings.
Oct. 31, 2014, 11:31 AM
- Three weeks after providing a calendar Q3 warning that triggered a massive chip stock rout, Microchip (MCHP +7.3%) has provided Q4 guidance that's in-line with lowered estimates. The microcontroller vendor, which has often seen trends emerge ahead of peers, also said it saw most of its inventory correction in Q3, and expects Q4 sales to be just "slightly below typical seasonal levels."
- Chip stocks are up strongly (SOXX +4%) on a day the Nasdaq is up 1.4%. Since Microchip's warning, a slew of analog chipmakers and microcontroller firms (e.g. Atmel, Freescale, STMicro, Intersil, Linear) have offered light Q4 guidance, and other firms have reported seeing high-end Android weakness (e.g. Synaptics, Cirrus Logic, Amkor).
- On the other hand, several mobile chipmakers (Skyworks, RF Micro, TriQuint, Silicon Motion), some of which have decent iPhone exposure, have provided strong results and/or guidance. Other chipmakers, such as Broadcom, Texas Instruments, and Xilinx, have rallied after delivering in-line guidance.
- Susquehanna's Chris Caso: "By now, we think it’s clear that the weakness MCHP saw in September is not company specific ... The question now is if the full extent of the weakness has been dialed into estimates. If it has, then this would be among the shortest and mildest downturns in many years."
- Notable gainers: SNDK +3.9%. MU +4.1%. AMAT +3.9%. TXN +4.7%. NXPI +3.9%. NVDA +3.5%. MXIM +4.7%. LLTC +5.1%. FCS +9.6%. FSL +8.8%. ADI +6.5%. TQNT +6.8%. RFMD +6.5%. ATML +5.9%. AVGO +5.1%. MRVL +4.7%. AMCC +8.9%. BRCM +3.6%. TSM +4.4%. ARMH +3.3%.
- Intel (INTC +3.5%) has recovered most of the losses it saw yesterday due to Intesil's (ISIL +3.3%) results and guidance, and related comments about a PC chip inventory correction.
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Oct. 20, 2014, 5:21 PM
- iPhone suppliers are trading higher after Apple beat FQ4 estimates and issued FQ1 guidance that was mostly above consensus. FQ4 iPhone sales of 39.3M were better than expected, and iPad sales of 12.3M worse than expected.
- Cirrus Logic (NASDAQ:CRUS) +1.4% AH. Avago (NASDAQ:AVGO) +1.2%. Skyworks (NASDAQ:SWKS) +1.2%. RF Micro (NASDAQ:RFMD) +2.4%. NXP (NASDAQ:NXPI) +2%.
Oct. 16, 2014, 2:47 PM
Oct. 14, 2014, 9:33 AM
- Skyworks (NASDAQ:SWKS) expects FQ4 (Sep. quarter) revenue of $718M and EPS of $1.08, above a consensus of $679.5M and $1.01. Full FQ4 results arrive on Nov. 6.
- The RF component maker also hiked its FQ3 guidance in June. Strong iPhone 6-related demand may have contributed to the latest hike, given recent reports.
- Peers are also up strongly amid a higher open for equities: RFMD +5.5%. TQNT +5.3%. AVGO +3%. Like other chip stocks, the group sold off on Friday following Microchip's warning.
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