The Hot Stock: Broadcom Soars 8.5%

Better-than-expected earnings made Broadcom the best performing stock in the S&P 500 Friday.

Broadcom (AVGO) soared to the top of the S&P 500 today after reporting higher-than-expected earnings and a larger role in Apple’s (AAPL) iPhone 8.

AVGO reported another solid quarter, beating expectations handily. Management noted that seasonal declines in the wireless segment were less than expected and more than offset by contributions from other segments. All segments, including wireless, increased on a year-over-year basis. Looking ahead to fiscal Q3, AVGO’s guidance is above expectations on seasonal wireless strength, albeit slower initially than AVGO has experienced in previous cycles, continued, and somewhat unexpected, strength in storage, and a stable wired communications environment. We continue to view AVGO as one of the strongest technology companies within the semiconductor universe and we believe that meaningful upside to the company’s longer-term margin targets is possible. We continue to expect AVGO’s valuation discount to the peer group average (~14.5x versus 18.9x) to narrow as management continues to execute on its longer-term strategy. Our 12-month price target of $261, raised from $250, is based on a 16x multiple on our new 2018 EPS estimate of $16.34.

Broadcom’s market capitalization rose to $107.9 billion today from $94.2 billion yesterday.