You’ll receive your new Investment Digest issue this afternoon. Here’s one more
Daily Alert pick first, a semiconductor company recommended by Argus analyst Jim
Kelleher.
“BUY-rated, Focus List selection Broadcom Corp. (BRCM) beat consensus sales
and non-GAAP EPS expectations in 1Q13 and offered above-consensus guidance
for 2Q13. First-quarter revenue of $2.01 billion topped the $1.9 billion consensus
call. Revenue also exceeded the high end of management’s $1.825-$1.975 billion
guidance range and rose 10% year-over-year. Although non-GAAP gross margin
narrowed sequentially, non-GAAP EPS of $0.65 was a full $0.09 ahead of the Street
consensus.
“Amid more challenging pricing, Broadcom is reporting essentially stable EPS
with last year, though sales are rising. Growth in 1Q13, according to CEO Scott
McGregor, was ‘driven by wireless baseband and wireless connectivity chips.’
These two product categories are used in mobile devices, where competition for
each smartphone socket has led to intense price competition. In 2Q13, the CEO
anticipates broad-based growth in all segments, which should eventually help
margins.
“Broadcom projected second-quarter revenue of $2.02-$2.18 billion, which at the
midpoint of $2.1 billion is above the prereporting consensus of $2.05 billion. While
Broadcom does not provide explicit EPS guidance, the data points it offered on gross
margins and operating costs suggest above-consensus EPS in 2Q. We are reiterating
our BUY rating on BRCM to a 12-month target price of $46.
“Valuation: BRCM shares are trading at 12.3-times our 2013 non-GAAP EPS
forecast and 11.2-times our 2014 projection. Based on average multiples from
2008 through 2012, BRCM’s historical P/E is 14.1. Comparative analysis, based
on historical multiples and current expectations, suggests a value for the stock
above $50. Discounted free cash flow analysis points to a value above $55. Our
blended valuation analysis indicates a fair value for BRCM above $52; though
down from their peak, calculated values remain well above the current stock price.
Appreciation to our 12-month target of $46 implies a potential risk-adjusted total
return in excess of our forecast for the broad market.”
Jim Kelleher, CFA, Argus Weekly Staff Report, 212-425-7500,
www.argusresearch.com, May 6, 2013