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Broadcom Inc. (AVGO) Up 18.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Broadcom Inc. (AVGO). Shares have added about 18.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Broadcom Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Broadcom Q1 Earnings Tops Estimates, Revenues Lag

Broadcom has reported mixed first-quarter fiscal 2019 results. Non-GAAP earnings of $5.55 per share beat the Zacks Consensus Estimate of $5.19. The figure 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.

Segmental Revenues

Semiconductor solutions’ revenues (76% of total revenues) totaled $4.374 billion, down 12% from the year-ago quarter.

Infrastructure software (24% of total revenues) was up 328% year over year to roughly $1.4 billion. Robust performance in SAN switching remains a tailwind.

Revenues for Intellectual property licensing were $12 million during the reported quarter compared to $1 million in the year-ago period.

Furthermore, 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 to explore the infrastructure software market and expand its TAM.

Operating Details

Non-GAAP gross margin expanded 660 basis points (bps) on a year-over-year basis to 71.4%. The increase was buoyed by favorable product mix and higher revenues base.

Non-GAAP operating expenses increased 22.4% year over year to $1.08 billion. Operating margin expanded 450 bps from the year-ago quarter to 52.7%.

Liquidity

As of Feb 3, 2018, cash & cash equivalents were $5.1 billion compared with $4.3 billion in the previous quarter. Long-term debt was $34.1 billion at the end of the fiscal first quarter compared with $17.5 billion in the prior quarter.

Broadcom generated cash flow from operations of roughly $2.1 billion compared with $2.6 billion in the previous quarter. Capital expenditure totaled $99 million, down from the last reported quarter figure of $106 million. Free cash flow during the quarter under review was $2 billion.

During the reported quarter, the company repurchased approximately 14.2 million shares for $3.51 billion. Additionally, Broadcom returned $1.1 billion in forms of dividends to shareholders during the fiscal first quarter. The company also approved a quarterly cash dividend of $2.65 per ordinary share.

Guidance

The company retained its outlook for fiscal 2019. Broadcom continues to forecasts non-GAAP revenues of almost $24.5 billion.

Non-GAAP operating margin is anticipated to be 51%.

The company projects capital expenditure of $550 million for fiscal 2019.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -11.41% due to these changes.

VGM Scores

Currently, Broadcom Inc. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Broadcom Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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