What to Watch For in Broadcom Earnings

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Broadcom Inc. (NASDAQ: AVGO) is set to release its fiscal third-quarter financial results after the markets close on Thursday. Consensus estimates from Thomson Reuters call for $4.82 in earnings per share (EPS) and $5.07 billion in revenue. In the same period of last year, the company said it had EPS of $4.10 on $4.47 billion in revenue.

Earlier this summer, Broadcom was hoping to acquire Qualcomm in a deal that faced more scrutiny and reviews than most companies would be able to stand. Now that the Qualcomm issue is believed to be behind Broadcom, the company has decided that CA Inc. (NASDAQ: CA) was going to be a suitable quasi-replacement deal for the chip giant.

Based on what has been seen so far, Broadcom made a serious mistake in trying to acquire CA for a sum of roughly $18.9 billion. The problem here is that the share price was almost $250 before the deal was announced, so it has lost almost 20% of its value, even before the investment community has been able to react to the deal.

It is not unusual for an acquiring company to see its shares drop on news that it is making an acquisition. Sometimes the acquirer’s stock even rises. But this loss in market capitalization is almost the entire value of the CA transaction.

In short, Wall Street does not believe that Broadcom’s deal is the right one. Perhaps the only good news is that Broadcom’s shares have traded up since then.

Excluding Thursday’s move, Broadcom has underperformed the broad markets, with its stock down 11% in the past 52 weeks. In just 2018 alone, the stock is down closer to 14%.

Prior to the report, a few analysts weighed in on Broadcom:

  • Barclays has an Overweight rating with a $265 price target.
  • KeyCorp has an Overweight rating and a $260 price target.
  • SunTrust Banks has a Buy rating with a $325 target price.
  • UBS Group has a Buy rating with a $300 target price.
  • Goldman Sachs has a Neutral rating with a $220 target.
  • Merrill Lynch has a Neutral rating and a $240 price target.
  • Raymond James has a Market Perform rating.

Shares of Broadcom were last seen down 2% at $216.36, with a consensus analyst price target of $288.61 and a 52-week trading range of $197.46 to $285.68.