It was the end of July before Broadcom’s [AVGO] share price had recovered to the trajectory it was following prior to the March market selloff, during which it dropped to $161.90 — its lowest close since 2017. Since then, however, Broadcom’s share price has been rallying — it was up 38.9% for the year to 8 December. As the semiconductor manufacturer draws closer to releasing its fourth quarter results on 10 December, what should investors expect of Broadcom’s share price?
At the start of August, Broadcom’s share price hit new heights and has been gradually raising the bar since. The stock broke through the $400 milestone at the end of November and went on to reach an all-time high of $406.68 on 1 December before closing at $404.57, marking a climb of 32.7% year-to-date and 149.8% since its March low.
Broadcom’s relationship with Apple key to sales
When Broadcom released its third quarter results on 3 September, it announced non-GAAP diluted earnings of $5.40 per share. This not only beat the consensus estimate on Zacks Equity Research of $5.24 per share by 3.05%, but marked the fourth consecutive quarter where Broadcom surpassed analyst expectations, as well as year-on-year growth of 4.65%.
As for revenue, Broadcom produced $5.82bn for the quarter ended 2 August, again beating the Zacks consensus estimate — for the third time over the last four quarters — by 0.7%. This marked year-over-year growth of 6%.
“Broadcom generated a fifth of its revenue from Apple [AAPL] last year,” Leo Sun wrote in The Motley Fool. “It also signed a new $15bn contract with Apple at the beginning of 2020 to provide wireless chips to the iPhone maker for the next three and a half years. That tight relationship indicates robust sales of the iPhone 12 will likely boost Broadcom's sales over the next few quarters.”
Despite the positive report, there was little visible effect on Broadcom’s share price, which actually closed 6.1% lower on the day of the results than the previous trading session.
Looking ahead to the next earnings release, Wall Street is anticipating Broadcom to post earnings of $6.24 per share, which would mark growth of 15.77% year-over-year, according to Zacks. Revenue, on the other hand, is expected to grow 11.1% from the prior-year quarter to $6.42bn. For the full year, analysts polled by the publication forecast Broadcom to produce earnings of $22.05 per share and revenues of $23.86bn.
A stock for all strategies?
“Broadcom investors get both a powerful dividend stock and a high-octane growth story, all rolled into one ticker,” Nicholas Rossolillo wrote in The Motley Fool.
"Broadcom investors get both a powerful dividend stock and a high-octane growth story, all rolled into one ticker" - Nicholas Rossolillo, The Motley Fool
“Through a mixture of strategic acquisitions and its own research efforts, Broadcom has become a market-defining name in [5G wireless networking, connected cars, and industrial automation], and then some,” he noted.
“Broadcom is a good buy for pure income investors, a good buy for growth-stock chasers, and a rather unique opportunity for those who want both thrilling growth and wealth-building dividends,” Rossolillo added.
Broadcom’s share price is rated Hold by Zacks, while the consensus rating among 32 analysts polled by CNN Money is Buy. This comes from a majority of 24, with three rating the stock an Outperform and five a Hold.
Meanwhile, the median price target among 29 analysts polled by CNN Money stands at $411, which suggests a 2.7% downside on Broadcom’s share price as of 8 December’s close. On the other hand, the high estimate of $500 indicates a potential 18% upside.