New York, July 26 (FinanceEnquiry.com) – Analyst Ross Seymore at Deutsche Bank Securities reiterates BUY rating on the shares of Broadcom Corp (NASDAQ: BRCM). The 12-month target price is set to $44 and based on a P/E multiple of approximately 14x CY13 PF EPS estimate ie, actually 18x on GAAP excluding cash basis.
In a research note published on July 25, the analyst mentions that as macro headwinds get largely offset by company-specific product cycles and share gains, strong 2Q results were reported by BRCM that were actually driven by combo chip upside and guided for solid growth of 3Q.
Shares of the company are expected to react favorably and these share gains are believed to probably continue into 4Q12/2013. As a consequence, EPS estimate remains unchanged. Being ahead of estimate and the consensus of $1.95 billion, 2Q revenues of $1.97 billion ie, +8 percent q/q were reported by Broadcom. Even though, being roughly in line with estimate, solid growth was delivered by sales in Broadband ie, +10 percent and Networking ie, +18 percent q/q, still, upside mainly on strength in combo chips and 3G basebands was driven by Mobile revenues ie, +3 percent q/q as compared to estimate of flat q/q.
On one hand, opex of $753 million was significantly lower than estimate of $766 million, while on the other hand, PF GM of 53.2 percent laid just ahead of 53.1 percent estimate. GAAP EPS of $0.51 was posted by Broadcom Corp, above estimate of $0.46, as it was driven by these factors. Moreover this, PF EPS of $0.72 laid ahead of estimate and the consensus of $0.68 and $0.67, respectively, excluding comp of stock.
Being marginally below estimate and the consensus of $2.09 billion ie, +7 percent q/q and $2.11 billion ie, +8 percent q/q, respectively, revenues of $2.0 billion to 2.15 billion ie,+1 to 9 percent q/q or $2.08 billion ie, +5 percent q/q at mid point were guided to BRCM for 3Q. Additionally, with Networking and Broadband also up q/q, revenues of mobile are expected by the company to significantly grow q/q.
Moreover, CY13E has been adjusted from $8.94 billion (+12 percent y/y)/$3.20 prior to $8.91 billion (+11 percent y/y)/$3.18 and CY12E revenues/PF EPS has been adjusted from $8.0 billion (+8 percent y/y)/$2.90 to $8.0 billion (+8 percent y/y)/$2.94.
In order to reflect superior growth record or potential of BRCM, the target multiple laid ahead of large-cap coverage group. Given competitive pressure, loss of market share and lower profitability, further worsening of macro and missteps of execution have been comprised in the risks. In addition to this, historical estimated P/E analysis for the years 2012 and 2013 are 23.8 x and 17.8 x, respectively, while in 2011, actual P/E analysis was 22 x. EPS of the company skidded from $1.652182 to $1.294325, the analyst adds further.
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