Broadcom Ltd. (AVGO, Financial) closed fiscal third-quarter 2017 reporting adjusted EPS of $4.10, or a net profit of $1.871 billion, on Aug. 24.
The semiconductor manufacturer's non-GAAP net income was 12.3% higher compared to the previous quarter and increased 44.7% year over year.
The company beat analysts’ earnings expectations by seven cents, generating a positive surprise of 1.7%. Analysts forecasted Broadcom would post EPS of $4.03.
Source: Yahoo Finance
When net profit and EPS are considered as GAAP measures, the company closed the quarter reporting a turnaround to a positive bottom line of $507 million (or diluted EPS of $1.14) from a loss of $315 million (or a per-share loss of 75 cents) reported in the comparable quarter of 2016.
Nearly 95% of GAAP net profit refers to Broadcom’s common shares and approximately 5% is attributable to non-controlling interests.
Total revenue for the quarter came in at $4.46 billion, meeting expectations and increasing 17.4% from the prior-year quarter.
The wired infrastructure segment's revenue, which usually accounts for 50% of the company’s total revenue, came in at $2.208 billion, a 7% increase on a year-over-year basis. The wireless communications segment contributed $1.283 billion, a 27% increase year over year; enterprise storage contributed $735 million, up 39% from the comparable quarter of 2016; and industrial and other gave $237 million, a 22% increase year over year.
Operating income was $648 million, up from a loss of $264 million last year.
The gross margin for the quarter - calculated as total sales revenue minus cost of goods sold - was $2.149 billion.
Despite the strong report, Broadcom shares fell $1.87, or 0.73%, yesterday.
Broadcom is now trading around $255.05 on the Nasdaq, close to its 52-week high of $259.36 per share. The 52-week low is $158.75 per share. The company has a price-earnings (P/E) ratio of -405.48, a price-book (P/B) ratio of 5.33 and a price-sales (P/S) ratio of 6.75.
If we multiply the forward P/E ratio of 15.36 by the average EPS forecast of $16.46, it yields a value of $252.83 per share.
The analysts' current average target price per share is $274.69, which ranges between a low of $200 and a high of $305. This means analysts foresee a 7.7% upside from the current share price over the next 12 months.
The recommendation rating is 1.7 out of 5. Out of 35 analysts, 24 recommend Broadcom as a buy and 10 analysts say it is a strong buy. As of August, only one analyst recommends holding shares.
Over the next five years, analysts project Broadcom will grow 18.20% annually, as they see room for the analog and digital semiconductor market to expand. They expect 8.6% earnings growth from fiscal 2017 to fiscal 2018.
GuruFocus gives Broadcom a profitability and growth rating of 8 out of a total of 10.
The company closed the quarter with $5.449 billion in cash on hand and securities. Total debt was $13.572 billion. The current ratio is 4.5, versus an industry average of 1.25. The quick ratio is 3.8, versus an industry average of 1.19.
GuruFocus gives Broadcom a financial strenght rating of 5 out of 10.
CEO Hock Tan commented on the company's third-quarter results.
“We continue to execute consistently and delivered strong financial results for our third fiscal quarter, with revenue growth of 6 percent and EPS growth of 11 percent sequentially," Tan said.
Tan said his is “expecting revenue growth to further accelerate in the fourth fiscal quarter”. Robust gains in content and seasonal strength in Broadcom’s wireless segment are anticipated to be the key drivers of revenue growth in the next quarter.
The company provided revenue guidance between $4.725 billion and $4.875 billion for the fourth quarter, while analysts expect average revenue of $4.87 billion.
The company expects the gross margin will range between 62.4% and 63.6% and that operating expenses will be approximately $780 million.
Disclosure: I have no positions in Broadcom Ltd.
