Wall Street has been very satisfied with the quarterly results of chipmakers like Skyworks (SWKS, Financial) and Qorvo (QRVO, Financial). Due to the success of Apple’s (AAPL, Financial) iPhone 6, these chipmakers are enjoying a strong quarter and with Avago Technologies (AVGO, Financial) yet to report its quarterly report, I think investors should consider buying the stock. The company has been on a stunning run and has been delivering good numbers on a consistent basis.
In the last quarter, Avago’s net revenue from on-going operations was $1.65 billion, a rise of 3 percent compared to $1.6 billion in the previous quarter, and an upsurge of 134 percent from $709 million, in the same quarter last year. Net income from continuing operations was $596 million, or $2.09 per diluted share. This associates with net income of $556 million, or $1.99 per diluted share last quarter, and net income of $217 million, or $0.84 per diluted share, in the same quarter last year.
Avago has had a firm start to their fiscal year with more than estimated 3 percent progressive revenue growth in the first quarter, forced by their wireless revenues, which escalated by 90 percent from the same quarter last year. And the company sustained to produce very effective financial results with greater than 40 percent functioning margins and $2.09 in EPS. Their share based return in the first quarter was $49 million. The downfall in the expenditure for the first quarter includes $6 million in cost of goods sold, $19 million in R&D and $24 million in SG&A. In the second quarter fiscal 2015, the company anticipates share based compensation to be around $52 million.
The strong smartphone market in the Wireless segment and the Enterprise Storage segment are the factors likely to increase Avago’s growth. Avago's RF chips, optical sensors, LEDS, and motion control products are expected to see increased demand in the smartphone market.
Samsung a Growth Driver
Avago Technologies likewise supplies chips to Samsung keeping in mind Samsung has lost a considerable measure of ground because of the accomplishment of the iPhone 6 it can at present go about as a development driver for Avago. As indicated by late reports, Avago Technologies has increased critical dollar content in the Galaxy S6. The organization's dollar content is accounted for to develop from $2-$3 in the Galaxy S5 to $5 in the Galaxy S6. In spite of the fact that sales of the Galaxy S6 are required to be in the 60 million-65 million territory (same as the Galaxy S5), the significant increment in dollar-content will go about as a positive for Avago Technologies.
Cheaper Valuation and Conclusion
The production of RF chips for wireless applications is undergoing a strong stock momentum among the top semiconductor manufacturers. One of these companies is Avago. Avago is still estimated below its rivals and lower than the market on a forward earnings source even after a strong build-up in price. Avago, Skyworks, Qorvo, and NXP all have solid anticipated earnings progress according to consensus approximations. Analog Devices have foreseen earnings growth that is closer to the regular S&P 500 company. Avago's EV/EBITDA is inferior to its fast-growing peers, so this marks the company appealingly valued when taxes are taken out of the consideration.
The PEG ratio - price/earnings to growth ratio - is a generally used measure of a stock's potential rate. It is preferred by numerous investors above the P/E ratio because it also accounts for progress. A lower PEG means that the stock is more underrated. Avago's estimation metrics are very good, the forward P/E is low at 13.89. Additionally, its PEG ratio is extremely low at 0.50. Given the cheap valuation and growth potential, Avago Technologies is a strong buy.
