Semiconductor manufacturer and infrastructure software giant Broadcom Inc. (AVGO) is scheduled to report its first-quarter earnings for Fiscal Year 2022 after U.S. markets close on March 3.
AVGO stock retains a Strong Buy recommendation from top Wall Street analysts, and shares could quickly recover should management exceed earlier performance guidance.
The company’s upcoming earnings report could build on the momentum exhibited in December when Broadcom reported a strong 14.5% year-over-year increase in fourth-quarter revenue, a 16.4% rise in gross profits, and a staggering 66.1% surge in operating income year-over-year. Interestingly, the market expects AVGO to grow its revenue by 14.3% in an upcoming report. Could earnings surge too?
I remain bullish on AVGO stock, especially considering the following three developments that could take place in the company’s upcoming quarterly earnings results.
Revenue Rising for 3rd Straight Quarter
Broadcom provided total revenue guidance of $7.6 billion for Q1 2022, representing a 14.3% year-over-year increase. If achieved, the company earnings report in March could mark the third consecutive quarter of revenue increases.
The company’s revenue mainly comes from its Semiconductor segment, which accounted for 74% of total revenue last year. The Infrastructure Software Solutions segment contributed 26% in FY 2021.
Record Operating Margins Loading
Operating earnings have been on a steady quarterly growth trajectory, rising consistently during the past seven quarters. Building on that momentum, Broadcom’s EBITDA margin could expand to a record 61.3% in the upcoming earnings report, up from 55.1% of revenue two years ago.
The company enjoyed favorable margins as demand growth, lower research and development expenses, lower stock-based compensation expenses, and lower acquisition expenses combined to boost its operating margins last year.
Most noteworthy, selling, general, and administrative (SG&A) expenses for 2021 dropped by 30% after higher one-time acquisition-related costs related to the Symantec deal in 2020, and non-recurring litigation settlements evaporated, giving way to lower operating expenses last year.
Net Earnings Could Surge by 26%
Broadcom’s net earnings margin could expand to a record 47.7% in the upcoming quarterly report. The company could convert nearly half of its revenue into net profits. Margins could expand from 44.7% during the same quarter last year.
Wall Street’s consensus earnings per share (EPS) forecast for the first quarter of 2022 of $8.13 per diluted share compares well with the previous year’s $6.61. Broadcom has set a tremendous record of beating analysts’ EPS forecasts for the past six consecutive quarters.
Other Latest Developments on Broadcom Stock
Earlier in February, Broadcom was cleared in a patent legal case where it was jointly charged with Apple, one of its major customers, to the tune of $1.1 billion.
Caltech had sued Apple and Broadcom in May 2016 after alleging that millions of iPhones, iPads, Apple Watches and other devices using Broadcom chips infringed its data-transmission patents.
Apple had been ordered to pay Caltech $838 million while Broadcom was to pay $270 million. The development reduces some pressure on cash flows and earnings.
Broadcom maintains its industry position as a leader in product innovation. The company announced this month the availability of the industry’s most secure and highest density fiber channel switch platform and the industry’s first double density fiber channel optical transceiver that expands the port densities.
Wall Street’s Take on AVGO Stock
Broadcom stock has a consensus Strong Buy rating from Wall Street analysts based on 20 Buys and three Holds. The average AVGO stock price target of $686 represents an 24% potential upside over the next 12 months.
Investor Takeaway
Wall Street remains bullish on Broadcom’s stock. Analysts expect shares to rise above their all-time highs over the next 12 months.
In another development, TipRanks captured an Informative Sell of AVGO stock by Broadcom Software Group president Thomas Krause worth $4.6 million two months ago.
Insiders sold shares worth $7.2 million during the past three months, creating the only bearish investing signal on Broadcom stock in the TipRanks analysis tool right now.
That said, AVGO retains a “Perfect 10” on TipRanks’ Smart Score, indicating its high probability to outperform the broader stock market this year.
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