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Broadcom Price Target Boosted To $200 At Morgan Stanley

Avago Technologies Limited NASDAQ:AVGO - Broadcom Price Target Boosted To $200 At Morgan Stanley

Morgan Stanley has reiterated its Overweight rating and raised its price target on Broadcom Ltd (NASDAQ: AVGO) by $9 to $200 following 4 percent EPS beat in the July quarter as rising dollar content in the upcoming iPhone launch led to a strong rebound in wireless segment.

The $200 target represents a potential upside of 13 percent over Thursday's close of $177.09.

"We still see a number levers to drive outsized EPS growth (22 percent CAGR), including product cycles in wireless and networking, ongoing merger synergies, and interest expense reduction," analyst Craig Hettenbach wrote in a note.

Related Link: Forget The Fed Meeting, September Means It's Time For A New iPhone

Hettenbach noted the company's modest revenue beat and cost discipline in an environment where most semiconductor firms have reported inline revenues. Specifically, the company guided to opex of $808 million in the October quarter, or 5 percent below the firm's estimate of $852 million.

Broadcom guided to revenue of $4.1 billion at the mid-point, 1 percent above the Street at $4.06 billion and closer to Morgan Stanley's estimate of $4.12 billion.

Gross margin was guided up 10bp to 60.5 percent, 30bp above the Street at 60.2 percent and 20bp below Morgan Stanley's estimate of 60.7 percent. Implied EPS for the October quarter is $3.34, 5 percent or $0.15 above the Street at $3.19 and $0.14 above Morgan Stanley's estimate of $3.20.

The analyst raised his non-GAAP CY16/17 EPS estimates by $0.22/$0.46 to $12.02/$13.92, driven by benefit from higher sales as well as lower opex and interest expense.

"We like AVGO for its above-average growth, leadership position in key markets and margin expansion-Overweight," Hettenbach added.

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