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Broadcom (AVGO) Prices Senior Unsecured Notes Offering

Zacks Equity Research

Broadcom AVGO announces pricing of senior notes worth $2,000 million,$1,500 million, $2,000 million, $2,500 million and $3,000 million. The principal amount of the notes is scheduled to mature by 2021, 2022, 2024, 2026 and 2029, respectively. Moreover, these notes will carry an interest rate of 3.125%, 3.125%, 3.625%, 4.250% and 4.750%, respectively.

The offering of the notes will be concluded on Apr 5, 2019, upon fulfillment of customary closing conditions. The offering reflects the company’s intention to repay outstanding amount under its revolving credit facility.

The notes will be privately offered to qualified institutional buyers under Rule 144A, which is exempted from registration requirements under the United States Securities Act of 1933. We believe these notes will provide financial flexibility to the company and fuel long-term growth.

The company reported first-quarter fiscal 2019 non-GAAP earnings of $5.55 per share, beating the Zacks Consensus Estimate of $5.19. The figure also improved 8.4% from the year-ago quarter.

Non-GAAP revenues from continuing operations were $5.789 billion, up 8.7% from the year-ago quarter and 6.3% sequentially. The figure missed the Zacks Consensus Estimate of $5.816.

Stock Performance & Cash Position

Shares of Broadcom have returned approximately 32.1% year over year, outperforming the industry’s rally of 22.9%.

We believe that the senior notes offering will lower Broadcom’s cost of capital, consequently strengthening balance sheet and supporting growth initiatives.

Broadcomexited the first quarter with cash and cash equivalent balance of $5.1 billion, up from $4.3 billion reported in the previous quarter Broadcom generated cash flow from operations of roughly $2.1 billion compared with $2.6 billion in the previous quarter. Free cash flow during the quarter under review was $2 billion.

Bottom Line

Broadcomhas an excellent earnings surprise history as the stock has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise of 4.3%. We expect the company to record earnings growth of 11.1% and 14.1% in 2019 and 2020, respectively.

The company’s strong relationships with leading OEMs across multiple target markets have helped it in gaining key insights into the requirements of customers. These insights have enhanced the company’s efficiency and productivity in serving the target markets and customers better.

Further, Broadcom’s expanding product portfolio makes it well poised to address the needs of rapidly growing technologies like Internet of Things (IoT) and 5G.

Moreover, we believe that the company is well positioned to benefit from synergies from the CA buyout. In fact, CA’s strength in enterprise software offerings and substantial customer base is anticipated to enable Broadcom in exploring the infrastructure software market and expand its TAM.

Zacks Rank and Stocks to Consider

Currently, Broadcom carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Cadence Design Systems, Inc CDNS, Synopsys, Inc. SNPS and Symantec Corporation SYMC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cadence Design, Synopsys and Symantec have long-term earnings growth rates of 12%, 10% and 7.9%, respectively.

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