On Tuesday, Evercore ISI adjusted the price target for Broadcom Limited (NASDAQ:AVGO) shares following a recent 10-to-1 stock split. The new target has been set at $201, down from the pre-split target of $2,010, while the firm maintains an Outperform rating on the stock.
The revision comes after Broadcom announced the stock split on June 12, 2024, which took effect after the market closed on July 12, 2024. Trading on a split-adjusted basis began on Monday. The adjustment in the price target reflects the stock division, setting the new target at a point that corresponds to the post-split share structure.
Evercore ISI has based the new price target on a forward-looking earnings per share (EPS) estimate. The $201 target assumes a 27.5 times multiple on the firm's projected 2027 EPS base case of $9, discounting back two years at a rate of 10%. This price-to-earnings (P/E) ratio is above the historical range of 10 to 20 times that Broadcom has traded at over the past 15 years.
The rationale behind the elevated P/E multiple, according to Evercore ISI, lies in the company's strategic positioning. Broadcom's role as a provider of artificial intelligence processors and networking chips is seen as providing visibility into the company's future performance, justifying the higher multiple compared to historical averages.
In other recent news, Broadcom has been the subject of several significant developments. Rosenblatt Securities recently raised its price target on Broadcom shares, citing high sales growth and a forthcoming 10-for-1 share split as factors. This optimism is bolstered by the company's performance in artificial intelligence (AI) semiconductor sales, which constitute over 40% of the company's sales mix.
Broadcom's recent acquisition of VMware (NYSE:VMW) is also expected to contribute to its growth trajectory. The company's second-quarter earnings surpassed expectations, reporting sales of $12.49 billion and earnings per share of $10.96. Its AI-related revenue forecast was also raised to over $11 billion for the current year.
In addition to these financial highlights, Broadcom announced a 10-for-1 stock split set to take effect later this year. Analyst firms Piper Sandler, Oppenheimer, and Wells Fargo (NYSE:WFC) have raised their price targets for Broadcom, driven by strong AI and VMware growth. These are some of the recent developments that highlight Broadcom's robust growth in key areas, particularly in AI.
InvestingPro Insights
Broadcom Limited's (NASDAQ:AVGO) recent 10-to-1 stock split and the subsequent price target adjustment by Evercore ISI highlights the company's sustained market confidence. Supporting this outlook, InvestingPro Tips indicate that Broadcom has raised its dividend for 14 consecutive years, a testament to its financial robustness and shareholder commitment. Furthermore, analysts are optimistic about the company’s sales growth in the current year, which aligns with Evercore ISI's positive outlook.
From a valuation standpoint, InvestingPro Data shows Broadcom with a market capitalization of $797.94 billion and a premium P/E ratio of 72.67, reflecting its high earnings multiple mentioned in the tips. Additionally, the company's strong revenue growth of 21.62% over the last twelve months as of Q2 2024, coupled with a gross profit margin of 74.24%, underscores its efficient operations and solid market position.
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