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Broadcom Inc. shares were on track for their best day in more than a year and a half Friday after more than half the analysts covering the chip and software company hiked their price targets on the stock following strong results and big plans to return cash to shareholders.
Broadcom
AVGO,
shares were last up 7.4% at $626.36, after touching an intraday high of $644.75, and were on track for their best performing day since April 6, 2020, when they closed up 7.8% at $252.44.
Late Thursday, Broadcom not only topped Wall Street expectations for the quarter and provided a strong outlook but also it announced a $10 billion share buyback it expects to complete in a little more than a year and hiked its dividend 14%. With more than $12 billion in cash on the company’s books and growing, Broadcom Chief Executive Hock Tan told analysts, “It’s just a very logical conclusion for us to not just sit on the cash,” given a lack of recent acquisitions from a company that has been heavily into M&A over the past few years.
Back in July, talks to buy software company SAS Institute Inc. fell apart, and the company hasn’t had a big deal since it closed on the acquisition of Symantec’s enterprise security business two years ago following acquisitions of CA Inc. and Brocade in previous years.
Of the 32 analysts who cover Broadcom, 27 have buy ratings, four have hold ratings, and one has a sell rating. Of those, 18 hiked their price targets, resulting in an average target of $664.72, up from a previous $578.93, according to FactSet data.
Bernstein analyst Stacy Rasgon, who has an outperform rating and hiked his price target to $725 from $560, characterized Broadcom’s report as “What’s not to like here?”
“While enjoying solid upside in their core markets the company has high and, potentially, more stable visibility given how they are proactively managing their bookings and demand as they parse their orders to minimize risks of customer stockpiling,” Rasgon said.
“Cash generation and return is stellar, with enough [free cash flow] to still leave M&A on the table even with the sizeable 2022 buyback (a positive in our opinion as we remain partial to their acquisition strategy),” Rasgon said.
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Citi Research analyst Christopher Danley, who has a buy rating and raised his price target to $685 from $585, on the basis that “Broadcom continues to see robust demand for its networking and storage products due to strength from the enterprise and cloud end markets.”
Susquehanna Financial analyst Christopher Rolland, who has a positive rating and a $680 price target, said that while near-term result were “as expected,” the company provided “solid guidance as Networking fires on all cylinders,” while “Cloud and Enterprise to accelerate while 5G rides the tide.”
Additionally, Rolland called the buyback and dividend hike results of how “management scours for a decent use of cash.”
Mizuho analyst Vijay Rakesh, who has a buy rating and a $665 price target, said he was surprised by the $10 billion buyback, but had expected more along the lines of $6 billion to $8 billion.
Jefferies analyst Mark Lipacis, who has a buy rating and hiked his price target to $720 from $590, said he estimates that Broadcom will be “returning greater than 100% of net income to shareholders in 2022.”
“AVGO trades a 35% discount to SOX, has solid visibility, a 2.8% div yield and is entering a capital return cycle,” Lipacis said.
Over the past 12 months, shares of Broadcom have gained 53%. In comparison, the S&P 500 index
SPX,
has advanced 28%, the tech-heavy Nasdaq Composite Index
COMP,
has risen 26%, while the PHLX Semiconductor Index
SOX,
has grown 43% over that time.
