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Avago Falls by 6.15% but Analysts Are Upbeat about Stock

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Jul. 13 2015, Updated 8:06 a.m. ET

Avago share price drops 6.15% in the last week of June

The share price of semiconductor firm Avago Technologies (AVGO) generated investor returns of -6.15% in the last week of June. The stock price of Avago dropped to $132.93 on June 30, 2015, from $141.64 on June 23, 2015, due to reduced demand of semiconductor chips, as the PC demand has fallen globally.

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Avago Technologies to acquire Broadcom for $37 billion

In May 2015, it was announced that Avago Technologies will be acquiring Broadcom Corporation (BRCM) for $37 billion in a cash and stock acquisition. Avago is set to pay $17 billion in cash and the balance of $20 billion in stock. The acquisition is set to be completed by 1Q16 and shareholders of Broadcom will own 32% of the merged company.

Through this acquisition, Avago has the opportunity to improve operating margins, as it looks to expand its data center offerings. Chipmakers are currently looking to consolidate operations in order to expand capacity and product portfolio.

As per Avago’s CEO, Hock Tan, this acquisition will enable the merged company to become more market relevant, as it will now be a firm that offers a variety of chip technology products under one roof, enabling large buyers like Apple (AAPL) and Amazon (AMZN) to get a variety of products from a single supplier. Avago is looking to generate $750 million in cost savings within 19 months of completing the acquisition.

After the acquisition, Avago Technologies is set to become the third largest semiconductor company in the world after Intel and Qualcomm.

Analysts are bullish on Avago Technologies

Out of 20 analysts covering the stock, 18 have a “buy” recommendation, one has a “sell” recommendation, and one has a “hold” recommendation. The analyst stock price target for the firm is $170.29 with a median target estimate of $170. AVGO is thus trading at a discount of 22% with respect to its median target and is an attractive buy at current levels. The stock has been in a bull run over the last 18 months, where it generated returns of 32.15% in 2014 and 79.56% in the trailing 12-month (or TTM) period, respectively.

If you’re looking to gain exposure to AVGO, you can invest in the Technology Select SPDR (XLK). XLK invests about 0.87% in the stock.

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