Analysts Are Bearish on the Broadcom–CA Technologies Deal

Analysts’ recommendations for Broadcom

Broadcom (AVGO) has had a strong foothold in the stock market, with shareholders and analysts bullish on the stock. However, its announcement that it planned to acquire CA Technologies (CA) saw six Wall Street analysts downgrade their ratings for Broadcom from “buy” to “hold.” As a result, the stock’s median price target fell from $311 to $300.

Nine of the 33 analysts that monitor AVGO issued “hold” recommendations on its stock. The remaining 24 analysts offered “buy” recommendations on AVGO stock.

Analysts Are Bearish on the Broadcom–CA Technologies Deal

Nomura

According to CNBC, Nomura Instinet analyst Romit Shah lowered his price target on AVGO stock from $250 to $225 on July 12. Shah considered the CA deal to be counter to Broadcom’s former’s investment strategy of delivering shareholder value “through organic growth, capital return and tuck-in acquisitions.”

Tuck-in acquisitions refer to acquisitions that fit the company’s business and bring merger synergies. Shah doesn’t see any significant merger synergies from the CA Technologies deal.

Mizuho Securities

Mizuho Securities analyst Vijay Rakesh retained his “buy” rating on Broadcom (AVGO). He stated that investors are concerned that AVGO’s acquisition of software firm CA Technologies might suffer the same fate as its previously failed hardware software acquisitions.

For example, Intel (INTC) acquired software firms McAfee and Wind River. However, it divested McAfee to private equity firm TPG Capital in April 2017, and it divested Wind River to TPG Capital in April.

BMO Capital

BMO Capital analyst Ambrish Srivastava lowered his price target for AVGO from $345 to $230. Srivastava believes that Broadcom’s aggressive cost-cutting and strong integration capabilities wouldn’t be sufficient to effectively turn CA’s declining mainframe business .

Goldman Sachs

StreetInsider.com noted that on July 18, Goldman Sachs analyst Toshiya Hari downgraded AVGO from $300 to $220, as he believed that the CA deal could create uncertainty around Broadcom’s long-term strategy. He stated that Broadcom’s management would have to explain its growth strategy for CA to shareholders, as well as how it plans to achieve its goals.

While the CA acquisition raises many questions, Broadcom’s investment returns remain strong. We’ll look into this topic in the next article.