Broadcom (NASDAQ:AVGO) is an integral link in the technology-hardware supply chain. Other companies might get all the fame and glory, but investors shouldn’t overlook Broadcom stock, which could rally sharply if the company exceeds Wall Street’s expectations. We’re assigning it a “B” grade today.
Don’t asses Broadcom using traditional valuation metrics; price-to-earnings ratios can be misleading, as these don’t provide a complete picture. Consider the company’s achievements and growth, and prepare yourself for an upcoming event that should keep the critics and short sellers at bay.
Broadcom’s Grand-Slam Quarter
It feels like yesterday that Broadcom delivered second-quarter fiscal 2024 results that could best be described as a grand slam. First of all, Broadcom announced a quarterly cash dividend of $5.25 per share. That’s pretty generous when the stock is around $140 or $150.
Next, Broadcom’s revenue grew 43% year over year to $12.5 billion. Also, the company’s revenue from AI products totaled $3.1 billion, a quarterly record for Broadcom.
Those were the major highlights, but there’s more good news to report. Specifically, Broadcom’s adjusted EBITDA increased 31% to $7.4 billion, and the company’s free cash flow, excluding restructuring and integration in the quarter, grew 18% to $5.3 billion.
Can Broadcom possibly follow these results up with another grand slam, or at least a home run? Let’s look at what Wall Street wants to see in Broadcom’s next quarterly earnings release.
Setting the Bar High for Broadcom
Broadcom has a stellar track record of quarterly EPS beats. Folks who bet against Broadcom lost their shirts repeatedly. However, the company will face another test soon.
Mark your calendar for Sept. 5, as that’s when Broadcom will publish its third-quarter fiscal 2024 results. Wall Street’s experts want to see Broadcom report earnings of $1.21 per share. That’s higher than what they expected in recent quarters from Broadcom.
Since the expectations are high, there’s no need to over-invest in Broadcom stock. It’s wise to maintain a reasonable position size, just in case high hopes lead to a letdown from Broadcom.
Still, high hopes aren’t necessarily a problem. For all of full-year fiscal 2024, Broadcom expects its revenue to grow 42% year over year to approximately $51 billion.
Moreover, per Barron’s, JPMorgan Chase analyst Harlan Sur sees Broadcom as potentially generating “$150 billion in cumulative AI revenue over the next five years.” So, a single quarter’s results shouldn’t be make-or-break for Broadcom.
Broadcom Stock: Stick With an Overachiever
High expectations can be a double-edged sword. It’s encouraging that Broadcom and Wall Street have high hopes for Broadcom. On the other hand, there’s no need to over-invest in Broadcom, since there’s no guarantee that the next earnings report will beat investors’ expectations.
A sensible solution would be to consider taking a small share position in Broadcom prior to the upcoming earnings release. Or, you could play it safe and just wait until the quarterly data is available. Either way, Broadcom stock deserves a confident “B” grade and should be appropriate for most people’s portfolios.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
