Morgan Stanley Raises Broadcom’s Target Price to $440; Forecasts Solid Earnings Report

Morgan Stanley raised their stock price forecast on Broadcom to $440 from $415, assigning an “Overweight” rating and said the global semiconductor leader will post a solid earnings report with strong unit and content growth in the iPhone pointing to upside.

The semiconductor manufacturer will report its fiscal quarter ending October 2020 earnings after the close of trading on Thursday, December 10. According to Zacks Investment Research, the consensus EPS forecast for the quarter is $5.32, up from $4.43 reported in the same quarter last year.

“We estimate October quarter revenue of $6.488bn (up 11.5% q/q and 12.3% y/y), slightly above the Street at $6.425bn. On a segment basis, we model Semiconductor Solutions at $4.852bn (up 15% q/q and 6.6% y/y) and Infrastructure Software at $1.636bn (up 2.1% q/q and 36.3% y/y). We estimate GM of 72.9% (down 130bps q/q and up 300bps y/y), below the Street at 73.7%, and EPS of $6.31, $0.07 above the Street at $6.24,” noted Craig Hettenbach, equity analyst at Morgan Stanley.

“Looking ahead to the January quarter, we model revenue of $6.501bn (up 0.2% q/q and 11% y/y), a touch below the Street at $6.515bn. From a segment perspective, we estimate Semiconductor Solutions revenue of $4.803bn (down 1% q/q and up 14.6% y/y) and Infrastructure Software revenue of $1.698bn (up 3.8% q/q and 1.9% y/y). We estimate GM of 72.6% (flat q/q and down 40bps y/y), below the Street at 73.5%, and EPS of $6.37, $0.02 above the Street at $6.35,” Hettenbach added.

Morgan Stanley gave a target price of $514 under a bull-case scenario and $307 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their stock price forecast to $450 from $400. Oppenheimer upped the price target to $475 from $400. Mizuho increased the price target to $425 from $390. At last, Jefferies raised the price objective to $420 from $405.

Seven analysts forecast the average price in 12 months at $420.83 with a high forecast of $475.00 and a low forecast of $360.00. The average price target represents a 2.22% increase from the last price of $411.68. From those seven analysts, five rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Broadcom’ shares closed 2.97% higher at $411.68 on Friday; the stock is up over 30% so far this year.

“We are Overweight Broadcom (AVGO) and expect a reversal in stock performance after meaningfully lagging the past 2 years. While sentiment on the CA deal has gradually improved, investors are negative on the Symantec acquisition. This creates a low bar, and we think AVGO will be able to execute on synergies and wring out the value in Symantec,” Morgan Stanley’s Hettenbach added.

“We are more positive than investors on the 3 key segments of endpoint, DLP and web proxy. If AVGO is able to execute in software it would add to what we view as a very compelling franchise in semis (65% weighted market share across 50% of revenue in duopoly structures), creating a diversified, highly profitable and cash generative business.”