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Broadcom (AVGO) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

Broadcom Limited AVGO is slated to release first-quarter fiscal 2019 results on Mar 14.

Notably, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise of 2.96%.

In the last reported quarter, the company delivered stellar non-GAAP earnings of $5.85 per share marginally beating the Zacks Consensus Estimate of $5.58 per share. The figure alos improved 27.5% from the year-ago quarter and 17.5% sequentially.

Non-GAAP revenues from continuing operations were $5.448 billion, soaring 124% from the year-ago quarter and 8% sequentially. GAAP revenues came in at $5.444 billion. The figure marginally surpassed the Zacks Consensus Estimate of $5.401.

Guidance & Estimates

The Zacks Consensus Estimate for earnings for the current quarter is pegged at $5.20 per share, up 1.6% year over year. Notably, the Zacks Consensus Estimate for revenues is pegged at $5.82 billion, up 9.3% year over year.

For fiscal 2019, Broadcom forecasts non-GAAP revenues of almost $24.5 billion. The Zacks Consensus Estimate is pegged at $24.39 billion.

Notably, shares of Broadcom have returned 3.9% in the year-to-date period, underperforming the industry’s rally of 8.1%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Broadcom recently introduced a couple of storage area network (“SAN”)-based management software platforms, namely Brocade SANnav Global View and Brocade SANnav Management Portal. With the new offerings (now available), Broadcom attempts to simplify operations through robust data management methods which bodes well. We believe this will aid Broadcom’s top line, going forward.

Further, the company’s strong relationships with leading OEMs across multiple target markets have helped it to gain key insights into the requirements of customers. This insight has enhanced the company’s efficiency and productivity in better-serving the target markets and customers.

In the last reported quarter, Wireless Communications (31% of total revenues) was down 5% year over year to roughly $1.7 billion. Decline in large wireless customers remains a headwind.

The Zacks Consensus Estimate for the Wireless Communications segment revenues are pegged at $1.492 billion, down 32.5% year over year.

Meanwhile, Enterprise Storage (23% of total revenues) soared 96% from the year-ago quarter to $1.3 billion. The improvement can primarily be attributed to contribution from the recently-acquired Brocade Fibre Channel switch business and strong enterprise IT spending.

The Zacks Consensus Estimate for the Enterprise Storage segment revenues are pegged at $1.240 billion, up 25.1% year over year.

Wired Infrastructure revenues (41% of total revenues) totaled $2.2 billion, up 3% from the year-ago quarter. The upside was primarily driven by robust demand for cloud data centers and traditional enterprises.

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

We believe that the company’s extensive product portfolio is likely to positively impact the to-be-reported quarter’s results.

Further, Broadcom pursues an aggressive acquisition strategy, which in turn fortifies its business model by diversifying end markets.

However, decline in its large wireless customers and sluggish spending on video access in the China optical markets remain concerns.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. However, stocks carrying a Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Broadcom has an Earnings ESP of -0.11% and a Zacks Rank #3.

Stocks With a Favorable Combination

Here are some companies you may want to consider as our model shows that these stocks have the right combination of elements to post an earnings beat:

Marinus Pharmaceuticals, Inc. MRNS has an Earnings ESP of +5.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

KalVista Pharmaceuticals, Inc. KALV has an Earnings ESP of +48.51% and a Zacks Rank #2.

Tencent Holding Ltd. TCEHY has an Earnings ESP of +3.57% and a Zacks Rank #3.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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