Based in San Jose, California, Broadcom Inc. (AVGO) is a developer and supplier of semiconductor infrastructure software solutions. The company operates through two segments – Semiconductor Solutions and Infrastructure Software. It also provides semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices worldwide.
AVGO’s strong fourth quarter results were driven by strong demand for networking from cloud providers and for broadband from service providers. Its growth in wireless should increase its direct sales capacity significantly. Also, the advent of AI chip manufacturing and 5G technology, and stringent test demands from the communications, consumer electronics, automotive and healthcare sectors, are expected to generate more business demand.
We think this well-diversified chipmaker is poised to benefit as companies across industries accelerate their efforts to become more digital, save costs and grow in the current, challenging business environment.
The company’s strategic acquisitions and innovative product developments have helped it to a 43.2% gain over the past year. This impressive performance combined with several other factors has pushed AVGO to a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates AVGO:
Trade Grade: A
AVGO is currently trading above its 50-day and 200-day moving averages of $421.56 and $347.48, respectively, indicating that the stock is in an uptrend. In fact, the stock has gained 27.8%over the past three months, reflecting solid short-term bullishness.
AVGO’s revenue has increased 12% year-over-year to $6.47 billion in the fourth quarter ended November 1, 2020. The company’s infrastructure software revenue grew 36% from its year-ago value to $1.64 billion. Its adjusted EBITDA rose 8.5% year-over-year to $13.64 billion, while its net income increased 56.3% from the prior-year quarter to $1.32 billion over this period.
This month AVGO introduced the BCM4389 chip, which enables the world’s first Wi-Fi 6E phone, the Samsung Galaxy S21 Ultra. This expansion creates seven additional 160 MHz channels for the BCM4389, unlocking the value of Wi-Fi 6E for remote work, education, telemedicine, and gaming. This should l establish the company as a global technology leader in the semiconductor and infrastructure software solutions.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , AVGO is well positioned. The stock is currently trading just 1.3% below its 52-week high of $470.00, which it hit on January 25.
The company’s net revenue has grown at a CAGR of 10.6% over the past three years, while its net income has increased at a CAGR of 20.5% over this period. AVGO’s EPS increased at a CAGR of 16.2% over the past three years. This bullishness can be attributed to the consistent developments, broad product portfolio, continued advancement in the international market, and rapid expansions made by the company.
Peer Grade: A
AVGO is currently ranked #3 of 99 stocks in the Semiconductor & Wireless Chip industry. Other popular stocks in this industry are Texas Instruments Incorporated (TXN), Analog Devices, Inc. (ADI) and Microchip Technology Incorporated (MCHP)
TXN, ADI, and MCHP have gained 31.4%, 31.8%, and 35.2%,respectively, over the past year. This compares to AVGO’s 43.2% returns over this period.
Industry Rank: A
The Semiconductor & Wireless Chip industry is ranked #2 of the 123 StockNews.com industries. The companies in this industry manufacture and sell semiconductors (computer chips), and other components used in electronic devices, as well as wafer processing equipment, semiconductor assembly and packaging equipment, and other machinery used to produce semiconductors.
Digitization has leaped forward within a short span of time amid the COVID-19 pandemic, which has forced the world’s workforce to shift from offices to homes and increased the dependency on smart devices to stay connected. The semiconductor industry has been capitalizing on our increasingly digitized and connected world. With a significant increase in the sale of consumer electronics during this digital revolution, companies in this industry are expected to generate solid returns.
Overall POWR Rating: A (Strong Buy)
AVGO is rated “Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.
A rising demand for wireless chips across multiple industries places AVGO in a favorable position to outperform the broader market in the coming quarters despite gaining 43.2% over the past year. The company’s strong returns in the infrastructure segment in the fourth quarter and investors’ bullish outlook on the booming chip market should drive its shares higher. Meanwhile, rapidly evolving trends in the vital field of AI and 5G should position the company well to generate handsome revenues in the coming quarters.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for AVGO. It has an average broker rating of 1.47, representing favorable analyst sentiment. Of 28 Wall Street analysts that rated the stock, 7 rated it a “Strong Buy.” A consensus EPS estimate of $6.22 for the quarter ending April 30, 2021 represents a 21% improvement year-over-year. The consensus revenue estimate of $6.33 billion for the next quarter represents a 11.1% increase from the same period last year.
Note that AVGO is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
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AVGO shares were trading at $448.78 per share on Wednesday afternoon, down $15.09 (-3.25%). Year-to-date, AVGO has gained 2.50%, versus a 1.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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