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Citigroup Resumes Coverage On Broadcom, Positive On Business Diversity

While mentioning that Broadcom Ltd AVGO had a diverse portfolio of good businesses, Citigroup’s Christopher Danely said in a report that the company’s core business had strength and that multiples would expand as debt declined. The analyst resumed coverage of Broadcom with a Buy rating and a price target of $205.

Terming Broadcom as “a fruit salad of good businesses,” analyst Danely commented that although the company specializes in semiconductor solutions, its diverse product portfolio consists of “the “classic” Avago wireless RF, Wired Infrastructure, Enterprise Storage, and Industrial segments combined with “classic” Broadcom businesses of Infrastructure and Networking, Broadband, and Wireless Connectivity.”

Core Businesses Strength

The company’s organic revenue growth of 14 percent over the last seven years has been ahead of the overall semi industry by 1,000 basis points, Danely stated. This has been driven by the core RF wireless and wired businesses, which would account for 67 percent of 2016 revenue.

The analyst expects Broadcom’s growth to continue to outpace that of the overall semiconductor industry at 6 percent y/y in 2017.

Lower Debt, Higher Multiple

Broadcom’s is valued below its peer average due to its higher debt, Danely noted. He added that the company’s net debt/EBITDA ratio would likely decline from 1.3X at yearend 2016 to 0.8X at yearend 2017, driving its multiple roughly 15 percent higher.

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DateFirmActionFromTo
Aug 2016BarclaysMaintainsOverweight
Aug 2016CitigroupAssumesBuy
Aug 2016Credit SuisseMaintainsOutperform

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