On Friday, BofA Securities adjusted its outlook on Broadcom Limited (NASDAQ: NASDAQ:AVGO), increasing the price target to $1,680 from $1,500, while reaffirming a Buy rating on the stock. The firm's analysis highlighted Broadcom's maintained sales forecast for FY24 at $50 billion, with a noted shift in product mix favoring artificial intelligence (AI), which is now projected to exceed $10 billion compared to the previous estimate of $7.5 billion.
The report observed that Broadcom's enterprise and telecommunications segments are undergoing inventory adjustments, a trend consistent with market peers. Broadcom's recent acquisition, VMWare, is reportedly experiencing a positive trajectory, with the company's overall software bookings expected to nearly double quarter-over-quarter to $3 billion in Q2. Additionally, VMWare sales are anticipated to grow by 10% quarter-over-quarter in subsequent quarters.
Increased bookings in Broadcom's legacy segments suggest that the company may be nearing a bottom in the first half of the year. As a result, BofA Securities has maintained its FY24 earnings forecast but increased its FY25 earnings estimate by 3% to $57.82, implying upward revisions for calendar years 2025 and 2026 by 3% and 4% to $59.69 and $66.16, respectively.
In the long term, BofA Securities projects Broadcom's earnings power to be in the range of $70 to $75 per year, as sales growth is expected to be in the double digits and EBIT margins are predicted to return to the historical range of 60-65%.
The raised price objective to $1,680 from $1,500 is based on a higher price-to-earnings ratio of 28 times the CY25 earnings estimate, compared to the current multiple of 24 times. This valuation falls within Broadcom's historical P/E range of 7 to 28 times, with the improved AI mix justifying the increase.
InvestingPro Insights
Broadcom Limited's (NASDAQ: AVGO) recent performance and analysts' optimism are echoed in the data and insights provided by InvestingPro. With a market capitalization of $630.63 billion and a Price/Earnings (P/E) ratio of 53.03, the company stands as a significant player in the technology sector. Notably, the P/E ratio has adjusted to 45.64 over the last twelve months as of Q4 2023, reflecting the market's valuation of the company's earnings.
InvestingPro Tips highlight Broadcom's consistent dividend growth, having raised its dividend for 14 consecutive years, which signals to investors a reliable return on investment through income. Additionally, analysts anticipate sales growth in the current year, aligning with the positive outlook shared by BofA Securities regarding Broadcom's sales forecast and the potential in its AI segment.
InvestingPro Data metrics reveal a robust gross profit margin of 74.11% for the last twelve months as of Q4 2023, underlining the company's efficiency in managing its cost of goods sold relative to its revenue. The company's strong return on assets at 19.28% also indicates effective use of its assets in generating profits.
For readers interested in a deeper analysis, InvestingPro offers additional tips on Broadcom, including insights on its trading multiples, industry position, and financial health. To explore these further, visit https://www.investing.com/pro/AVGO and consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 19 more InvestingPro Tips available, investors can gain a comprehensive understanding of Broadcom's investment potential.
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