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Broadcom (AVGO) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

Broadcom AVGO is scheduled to release third-quarter fiscal 2019 results on Sep 12. The company’s initiatives to strengthen presence in the infrastructure software end market are expected to favor positively impact the to-be-reported quarter’s results.

Notably, the company had surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 3.9%.

Q2 at a Glance

Broadcom had reported mixed second-quarter fiscal 2019 results. Non-GAAP earnings of $5.21 per share beat the Zacks Consensus Estimate by 4 cents and improved 6.8% from the year-ago quarter.

Non-GAAP revenues from continuing operations were $5.517 billion, up 10% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $5.663 billion.

What to Expect in Q3

The Zacks Consensus Estimate for revenues for fiscal third quarter is pegged at $5.50 billion, indicating an improvement of 8.7% from the year-ago quarter.

We note that the Zacks Consensus Estimate for earnings has remained unchanged in the past 30 days. The consensus stands at $5.09 per share, suggesting growth of 2.2% from the year-ago reported figure.

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

Broadcom Inc. Price and EPS Surprise

 

Broadcom Inc. Price and EPS Surprise

Broadcom Inc. price-eps-surprise | Broadcom Inc. Quote

 

Factors Likely to Influence Q3 Results

Product Roll Outs & Deal Renewals to Favor Top Line

Broadcom is striving to sustain its competitive position in the semiconductor market with robust product launches. In fact, during the quarter under review, the company unveiled Trident 4 BCM56880 Ethernet switch series integrated with runtime programmability capabilities, to enhance performance of data centers.

Moreover, Broadcom introduced G.fast 212 MHz system-level vector processor, BCM65550, with an aim to aid telecom operators deliver gigabit broadband services to high-density residential regions via the existing installed copper lines.

Further, Broadcom extended supply deal with iPhone maker, Apple AAPL, for two years, which is expected to reflect positively in the upcoming financial release. Per the terms of the deal, Broadcom will provide Apple the required “radio-frequency (“RF”) front end components and modules” that can be utilized across iPhones, Apple watches, and iPads.

We believe the incremental adoption of new offerings and deal renewals will aid Broadcom’s Semiconductor Solutions segment results in the quarter under review. Notably, the Zacks Consensus Estimate for the Semiconductor Solutions segment revenues are pegged at $4.313 billion.

Efforts in Infrastructure Software Space Enhance Prospects

Broadcom is well positioned to benefit from synergies from the CA buyout. In fact, CA’s strength in enterprise software offerings and substantial customer base are anticipated to enable Broadcom to strengthen presence in the infrastructure software space and expand TAM.

Notably, the Zacks Consensus Estimate for the Infrastructure Software segment revenues are pegged at $1.238 billion.

Moreover, Broadcom inked deal to acquire Symantec’s SYMC enterprise security business for $10.7 billion in cash with an aim to expand presence in infrastructure software space, on Aug 8, 2019. The company also maintained fiscal 2019 outlook. Although the development is not anticipated to impact the upcoming quarter results, management is expected to divulge the details in the earnings conference.

Risks Remain

Huawei-related headwinds and intensifying tariffs owing to ongoing trade-war between the United States and China are likely to hinder the company’s growth prospects in the fiscal third-quarter.

Further, the company’s leveraged balance sheet remains a major concern.

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. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks 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 0.00% and a Zacks Rank #4.

Stock that Warrants a Look

Here is a stock which you may consider as our model shows that it has the right combination of elements to post an earnings beat in its upcoming release:

Micron Technology MU has an Earnings ESP of +7.76% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is set to report fourth quarter fiscal 2019 earnings on Sep 26, 2019.

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