Broadcom Stock Price Forecast September 2021 – Time to Buy AVGO Stock?
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Broadcom (AVGO) stock is up 17% so far in 2021 and is underperforming the S&P 500. What’s the forecast for AVGO stock and should you buy the stock in September 2021?
Chipmaker stocks have been in focus amid the global chip shortage that has crippled many industries. The automotive industry has been particularly impacted and most leading automakers are staring at a production loss this year.
Broadcom recent developments
Last week, Broadcom released its earnings which were higher than what analysts were projecting. The company’s revenues increased 16% year-over-year to $6.78 billion in the fiscal third quarter. The topline growth was slightly ahead of what analysts were expecting. It reported an adjusted EPS of $6.96 in the quarter which was ahead of the $6.88 that analysts were expecting.
Sounding an optimistic tone, Hock Tan, Broadcom’s CEO said “Broadcom delivered record revenues in the third quarter reflecting our product and technology leadership across multiple secular growth markets in cloud, 5G infrastructure, broadband, and wireless.”
The company also issued upbeat guidance for the fiscal fourth quarter and said that it expects revenues to be around $7.35 billion in the quarter. It expects an adjusted EBITDA margin of 61% in the quarter which is in line with the 60.6% margin that it reported in the fiscal third quarter. Commenting on the company’s outlook, Tan said “We are projecting the momentum to continue in the fourth quarter.”
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AVGO has a strong balance sheet
AVGO reported free cash flows of $3.4 billion in the quarter which was 51% of its revenues in the quarter. That’s a pretty strong free cash flow yield and Broadcom ended the quarter with total cash and cash equivalents of $11.1 billion The company announced a dividend of $3.6 in the quarter which implies an annualized yield of 2.9% which is almost twice the S&P 500’s dividend yield.
Analysts raise target price for Broadcom stock
After Broadcom’s strong fiscal third-quarter earnings and fourth-quarter guidance, several analysts upwardly revised the target price for AVGO. Piper Sandler raised the stock’s target price by $25 to $550 while maintaining its overweight rating. “Overall, the company appears to be very confident about demand trends heading into fiscal 2022, with enterprise leading the way. The company continues to execute well, driving strong margin expansion and free cash flow generation,” it said in its note. Stacy Rasgon of Bernstein is also bullish on the stock and termed its earnings and guidance as “solid.”
Jefferies is bullish on AVGO stock
JPMorgan Chase and Rosenblatt also raised AVGO’s target price to a street high of $600. Jefferies also raised Broadcom’s target price from $550 to $590. “Broadcom (AVGO) beat and raised on 19% YY growth in Semis with 17% / 13% QQ in networking and storage. AVGO expects sustained 14% YY growth for Oct Q with strength led by Wireless (next-gen smartphone launch) and Storage (enterprise recovery),” said Jefferies analyst Mark Lipacis. He added, “We think a capital return commitment with share buybacks could be a catalyst to re-ratings. AVGO’s unique visibility and measured supplying process lowers risk. Raise price target to $590 on 18xCY 2022 EPS, ~7% discount to SOX”
Broadcom stock price forecast
Looking at the consolidated ratings, Broadcom has 25 buys, seven holds, and one sell rating. It has a median target price of $560 which implies an upside of 12.5% over the next 12 months. The street high target price of $600 is a premium of 20.5% over current prices.
Overall, the forecast for Broadcom stock looks positive. The chip shortage situation is expected to continue well into 2022. Also, the demand side of the equation for semiconductors looks strong amid the digital transformation and the 5G supercycle. If you are a dividend investor, the stock’s dividend yield also looks quite strong. Broadcom’s diversified end market exposure is another added advantage as it helps the company escape a slowdown in one particular end market.
AVGO stock price valuation
AVGO stock trades at an NTM (next-12 months) PE multiple of 16.3x. The multiples have averaged 16.4x over the last year with a high of 18.6x and a low of 14x. That said, the valuations are higher than the five-year average of 13.7x. However, given the digital transformation and the soaring demand for semiconductors, the sector has seen a rerating.
The valuation multiples look reasonable despite them being at a significant premium to the long-term averages.
Broadcom stock price technical analysis
AVGO stock is looking bullish on the charts also and trades above the 50-day, 100-day, and 200-day SMA (simple moving average). The stock has a 14-day RSI (relative strength index) of 62.2 which is a neutral indicator but is getting near the oversold territory. The MACD (moving average convergence divergence) also gives a buy signal for Broadcom stock.
The is currently a severe chip shortage even as sales of smart gadgets have been soaring. Overall, chipmakers like Broadcom are at attractive play on the digital transformation and the 5G supercycle.
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