Broadcom share price: What to expect in Q3 earnings

Broadcom's [AVGO] share price has had a wild ride so far in 2020. The semiconductor manufacturer’s stock hit a low of $167 in March as the coronavirus pandemic took hold, before rebounding to all-time highs north of $344 in August — a healthy 47% profit for any investors who picked up the stock back in March.

Prompting investors to continue backing Broadcom’s share price is strong demand for the firm’s products, which saw revenue come in at $5.74bn in the second quarter, up 4% on the same quarter last year.

So, could Broadcom's share price enjoy a post-earnings bounce? And how likely is another earnings beat?

When is Broadcom reporting Q3 earnings?

3 September

What could move Broadcom's share price post-earnings?

Strong semiconductor sales

Broadcom’s share price has benefitted this year from a huge surge in demand for its semiconductors. How huge? Well, the company is struggling to keep up with orders, which is an impressive feat as coronavirus has sapped demand elsewhere in the economy.  In the second quarter, Broadcom saw semiconductor sales come in at $4.02bn, just a 2% decline on the same quarter last year. Considering some of its customers are struggling to keep afloat, that decline could have been a lot worse.

"Looking ahead, our third-quarter guidance for semiconductors reflects a surge in demand from cloud, telecom and enterprise customers, offset by supply chain constraints and an expected substantial reset in wireless," Hock Tan, President and CEO of Broadcom said during the second-quarter earnings call.

“Looking ahead, our third-quarter guidance for semiconductors reflects a surge in demand from cloud, telecom and enterprise customers, offset by supply chain constraints and an expected substantial reset in wireless” - Hock Tan, President and CEO of Broadcom

Dividend payout

For income-seeking investors, Broadcom’s share price rising is not the only chance of a profit. The stock carries a forward 3.83% dividend yield — a rare thing in today's market. The fact that Broadcom is able to payout to its investors is down to its substantial free cash flow of $3bn in the second quarter. This saw the semiconductor manufacturer reward investors with a $3.25 per share quarterly dividend during Q2 results. 

"Given our strong free cash flow generation, healthy balance sheet and enhanced liquidity position, we remain committed to maintaining our dividend while we navigate these unprecedented times," said CFO Tom Krause.

“Given our strong free cash flow generation, healthy balance sheet and enhanced liquidity position, we remain committed to maintaining our dividend while we navigate these unprecedented times” - CFO Tom Krause

What does Wall Street expect in Q3?

Wall Street is predicting earnings of $5.23 per share for the quarter, up from the $5.16 seen in the same quarter last year. Revenue is expected to come in at $5.76bn — a 4.5% increase from the $5.51bn seen last year.

Broadcom itself is forecasting revenue of $5.75bn, give or take $150m in either direction. Adjusted EBITDA is expected to come in at $3.2bn, plus or minus $75m.

Could Broadcom’s share price beat expectations?

Broadcom has had mixed fortunes topping analyst expectations. Last quarter, analysts’ predictions for earnings of $5.14 a share were bang on. That was enough to see Broadcom's share price close 2.4% higher on 5 April.

However, first-quarter results in March saw Broadcom miss Wall Street forecasts. While Broadcom’s share price saw a post-earnings slump in the 5 days after, it's hard to read too much into this as it coincided with the peak of the coronavirus sell-off.

Among the 29 analysts tracking the stock on Yahoo Finance, Broadcom has near-universal admiration — 10 rate Broadcom a Strong Buy, while 17 rate it a Buy. An average price target of $348.78 would see a 3% downside on Broadcom's share price as of 1 September’s close.