Broadcom Ltd. (AVGO, Financial)Â closed fiscal second-quarter 2017 reporting adjusted EPS of $3.69, or a net profit of $1.67 billion, on June 1.
The semiconductor manufacturer's net income was 2.4% higher compared to the previous quarter and increased 48.8% on a year-over-year basis.
The company beat analysts’ expectations on non-GAAP earnings from ongoing operations by 19 cents, generating a positive surprise of 5.40%. Analysts forecasted Broadcom would post EPS of $3.5.
Source: Yahoo Finance
When GAAP measures for net profit and EPS are considered, the company closed the quarter reporting a turnaround to a positive bottom line of $464 million (or diluted EPS of $1.05) - of which about 94.83% refers to Broadcom’s common shares and 5.17% is attributable to non-controlling interests- from a loss of $1,255 million (or a per-share loss of $3.02) reported in the same quarter one year ago.
For the second quarter, the wired infrastructure segment's revenue, which usually contributes approximately 50% of the company’s total revenue, came in at $2.11 billion, a 2.48% increase on a year-over-year basis. The wireless communications segment contributed $1.15 billion (up 45.20%); enterprise storage contributed $712 million (up 35.62%); and industrial and other gave $217 million (up 32.32%).Â
Therefore, total revenue came in at $4.2 billion for the quarter, an 18% increase on a year-over-year basis. Broadcom beat expectations by $90 million.
Operating income was $474 million, up from a $1 billion loss last year.
For the second quarter, the gross margin - calculated as total sales revenue minus cost of goods sold - was $1.976 billion.Â
Following the report, shares of Broadcom have jumped $12.73 or 5.32% since June 1. The stock is now trading around $252.21 on the Nasdaq stock exchange with a price-earnings (P/E) ratio of -53.28, a price-book (P/B) ratio of 5.30 and a price-sales (P/S) ratio of 6.85.
Broadcom is now trading close to its 52-week high of $258.76. If we multiply the forward P/E ratio of 14.86 by full-year EPS estimates of $15.67, we obtain a value of $232.86 per share, which appear to be overvalued. Broadcom’s 52-week low is $142.27.
As of today, analysts set an average target price per share of $271.16, anticipating a 7.5% upside to the current share price over the next year. The estimates range between a low of $200 per share and a high of $305 per share.
The recommendation rating for Broadcom is 1.8 out of 5, with 24 analysts out of a total of 34 suggesting to buy shares For nine analysts, the stock is suggested as a strong buy as of today.
For the next five years, analysts forecast Broadcom will grow 15% annually as they see room for the analog and digital semiconductor market to expand.
The company reported it had $4.254 billion in cash and securities while the total debt amounted to $13.567 billion. Broadcom appears to be one of the most indebted companies in the industry with a debt to equity ratio of 71.26 (versus an industry average of 22.12). Regardless, its interest coverage ratio of 8.44 suggests the company does not have difficulty paying interest expenses on outstanding debt.
Hock Tan, Broadcom’s president and CEO, commented on the company's second-quarter results.
“We delivered strong financial results for our second fiscal quarter with revenue, gross margin and EPS all above the top end of guidance," Tan said.
He expects robust growth in the wired infrastructure segment as well as “seasonal second half ramp” in Broadcom’s wireless segment will drive revenue up 6% in the third quarter.
The company provided revenue guidance between $4.375 billion and $4.525 billion for the third quarter. Analysts expect an average revenue of $4.46 billion:
Source: Yahoo Finance
The company expects the gross margin will range between 62% and 64% and that operating expenses will be approximately $787 million.
In addition, Broadcom announced a quarterly dividend of $1.02 for shareholders of record as of June 19. It will be paid on June 30.
Disclosure: I have no positions in Broadcom Ltd.
