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Broadcom and Advance Auto Parts highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – July 03, 2017 –Zacks Equity Research Broadcom Limited (NASDAQ: AVGO Free Report ) as the Bull of the Day, Advance Auto Parts (NYSE: AAP Free Report ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on various companies.

Here is a synopsis of all two stocks:

Bull of the Day :

Headquartered in San Jose, CA and Singapore,Broadcom Limited (NASDAQ: AVGO Free Report ) is a designer, developer and global supplier of a broad range of semiconductor devices, The company was formed following the merger of Avago and Broadcom Corporation in February 2016.

Avago products primarily serve four markets: Wired Infrastructure (50% of Q2 revenue), Wireless Communications (28%), Enterprise Storage (17%), and Industrial & Other (5%). The company has a global presence and a very diversified revenue model.

Excellent Results and Raised Guidance

Broadcom reported strong second-quarter fiscal 2017 results with earnings rising almost 46% year-over-year. Adjusted earnings (including stock-based compensation) were $3.31 per share, ahead of the Zacks Consensus Estimate of $3.02.

Revenues were 4.2 billion, up 18% year-over-year, better than management’s guidance as well as the Zacks Consensus Estimate.

“We delivered strong financial results for our second fiscal quarter with revenue, gross margin and EPS all above the top end of guidance,” said the CEO. “Anticipating that end markets will remain healthy, we expect third fiscal quarter revenue growth of approximately six percent sequentially, driven by solid growth from our wired segment and a seasonal second half ramp in our wireless segment.”

The management raised their guidance for the fiscal third quarter; they now revenues of $4.45 billion, better than street consensus.

Rising Estimates

After better-than-expected results and upgraded guidance, the Zacks Consensus Estimates for FY 2017 and 2018 have increased to $13.78 per share and $15.20 per share, from $12.89 and $14.21 respectively, 30 days ago. The company has beaten the estimates in all of the last four quarter, with average quarterly surprise at 6.73%.

Solid Industry Outlook

Semiconductor industry is currently ranked 76 out of 265 Zacks industries (top 29%). With rising demand from many high growth areas, the industry is likely to outperform the broader markets in the coming months.

Bernstein chip analyst recommends Broadcom as a safe haven amidst rising expectations for the chip industry that leave little room for error. “We prefer AVGO (strong FCF cash flow generation creating potential for earnings upside through M&A and/or margin expansion from strong cash return / dividend growth, with long term margin expansion and attractive valuation.”

Increased Content in iPhone 8

The company makes radio frequency chips that are used in smartphones by Apple, Samsung and other mobile device manufacturers.

Avago is a key Apple supplier and expected to gain content iPhone 8. Their content in Samsung’s latest smartphone Samsung Galaxy S8 had also gone up.

Returning Cash to Shareholders

The chipmaker has been paying dividends since 2010. In December 2016, they had doubled their dividend to $1.02 per share. They have a nice dividend yield of 1.74% currently. With strong and rising cash flows, the company should be able to increase its dividend going forward too.

The Bottom Line

With a strong industry outlook, rising earnings estimates and a nice dividend yield, the company looks set to reward investors in the coming months. Trading at a forward PE of 16.98, the stock looks attractive from valuation perspective too, compared to the industry multiple of 20.72 and S&P 500 multiple of about 19.

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Bear of the Day :

Advance Auto Parts (NYSE:AAP Free Report ) a leading automotive parts supplier in North America, serving both the professional installer and do-it-yourself customers. The company operates approximately 5,100 stores, 126 Worldpac branches and serves approximately 1,300 independently owned Carquest branded stores in the US and Canada. They employ approximately 74,000 people.

Shares Plunge After Weak Results

The company reported Q1 ended April 22 on May 24. Adjusted earnings to $1.60 per share were down 36% year-over-year and also significantly below the Zacks Consensus Estimate of $2.12.

Revenues declined 3% year over year to $2.89 billion and also missed the Zacks Consensus Estimate of $2.93 billion.

“Our first quarter comparable store sales declined 2.7%. As expected, comparable store sales were unfavorably impacted by the shift in New Year’s Day to the first quarter of 2017 as well as the significant shift of winter related demand into December,” said the CEO.

Shares plunged after the report and have continued to slide since then. The stock is now down about 32% year-to-date.

Falling Estimates

Analysts have slashed their estimates for the company after weak guidance. Zacks Consensus Estimates for the current and next fiscal year have fallen to $6.78 per share and $8.15 per share from $7.51 and $8.72 respectively, before the results.

The company has missed in three out of past four quarters and just met in one. The average negative quarterly surprise for the past four quarters is 10.75%.

The Bottom Line

It was recently reported that the company is cutting management-level job positions companywide. Auto parts suppliers are facing increasing headwinds due to rising competition from Amazon.

The industry “Automotive - Retail and Wholesale - Parts” is currently ranked 247 out of 265 Zacks industries (bottom 7%), suggesting potential underperformance in the short-to-medium term. With the fundamental shift in the auto industry towards smart cars with more digital features, traditional auto suppliers will face rising challenges ahead.

It would be better for investors to stay away from this stock and the industry as of now. There is no Zacks #1 or #2 stock in this industry.

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Get today’s Zacks #1 Stock of the Day with your free subscription to Profit from the Pros newsletter:

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Broadcom Limited (AVGO): Free Stock Analysis Report
 
Advance Auto Parts Inc (AAP): Free Stock Analysis Report
 
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