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Why Broadcom Stock Is an Attractive Pick for Investors

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Today at 6:07 AM ET, Broadcom (NASDAQ:AVGO) stock rose 1.74% to $314.25 in the pre-market session. The stock rose after the company reported its results for the second quarter of fiscal 2020 (quarter ended May 3) on Thursday. Broadcom’s revenues and earnings numbers for the second quarter were in-line with Wall Street’s consensus estimate.

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Broadcom’s Q2 earnings results

In the second quarter, Broadcom reported an adjusted EPS of $5.14 compared to $5.21 in the second quarter of fiscal 2019. The adjusted EPS met analysts’ consensus estimate of $5.14. Broadcom generated sales of $5.74 billion—a growth of 4.1% from the second quarter of fiscal 2019. The company beat analysts’ consensus revenue estimate of $5.69 billion.

In the second quarter, semiconductor solutions sales fell 1.9% YoY (year-over-year) to $4.03 billion and accounted for 70.1% of the total revenues. In the first quarter, infrastructure software sales rose 21.4% YoY to $1.72 billion. Wall Street expected semiconductor solutions sales of $3.99 billion and infrastructure software sales of $1.71 billion.

In the second-quarter earnings release, Broadcom CEO Hock Tan said, “Second quarter results were in-line with our expectations, and saw limited impact from the effects of COVID-19.” Tan also said, “Looking ahead, our third quarter guidance for semiconductors reflects a surge in demand from cloud, telecom and enterprise customers, offset by supply chain constraints and an expected substantial reset in wireless. We remain focused on investing in our diverse set of mission critical semiconductor and software franchises, while carefully managing our expenses in this uncertain environment.”

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Financial outlook

In the third quarter, Broadcom expects its total revenue to be $5.6 billion–$5.9 billion. The company also expects its adjusted EBITDA to be $3.145 billion–$3.295 billion.

Wall Street analysts expected Broadcom to report an adjusted EPS of $5.30 on revenue of $5.8 billion in the third quarter. Analysts also expect the company’s sales to rise 4.2% YoY in fiscal 2020 to $23.5 billion. The sales could rise by 5.6% YoY in fiscal 2021 to $24.9 billion. The adjusted EPS will increase from $21.29 in fiscal 2019 to $21.53 in fiscal 2020. Analysts also expect an adjusted EPS of $23.91 in fiscal 2021.

Analysts’ recommendations for Broadcom

Among the 32 analysts following Broadcom stock, 25 recommend a “buy,” while seven recommend a “hold.” None of the analysts recommend a “sell.” Wall Street analysts’ mean target price on the stock is $322.93, which implies a 4.5% gain from the current level of $308.89. The consensus target price for the stock has increased from $296.04 in May—a growth of 9.1%.

Many analysts increased their target price for Broadcom stock after its second-quarter results.

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  • KeyBanc increased its target price from $290 to $360.
  • Piper Sandler increased its target price from $300 to $360.
  • Cowen and Company increased its target price from $230 to $305.
  • Evercore ISI increased its target price from $290 to $315.
  • J.P. Morgan increased its target price from $340 to $365.
  • Rosenblatt Securities increased its target price from $350 to $370.
  • Citigroup increased its target price from $303 to $360.
  • Susquehanna increased its target price from $340 to $360.
  • Barclays increased its target price from $320 to $345.
  • Mizuho increased its target price from $315 to $325.
  • BMO increased its target price from $330 to $350.
  • Deutsche Bank increased its target price from $300 to $360.
  • Suntrust Robinson increased its target price from $300 to $360.

Stock returns

Broadcom stock fell 0.2% on Thursday and ended the day at $308.89. At this closing price, the company’s market cap is $123.5 billion. Notably, the stock is trading 6.8% below its 52-week high of $331.58 and 98.4% above its 52-week low of $155.67.

Based on the closing price on Thursday, Broadcom stock was trading 10.3% above its 20-day moving average of $280.14. The stock is also trading 16.8% above its 50-day moving average of $264.36 and 13.0% above its 100-day moving average of $273.39. Broadcom’s 14-day relative strength index number is 70, which indicates that it’s overbought.

Broadcom stock has a middle Bollinger Band level of $280.14, while its lower Bollinger Band level is $253.11. On Thursday, Broadcom stock closed near its upper Bollinger Band level of $307.18, which indicates that it’s overbought.

On Thursday, the Dow Jones Industrial Average rose by 12 points or 0.05%. However, the S&P 500 and the Nasdaq Composite fell 0.34% and 0.69%, respectively. Read US Stock Markets: Will Nasdaq Hit All-Time Highs in June? to learn more.

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