Semiconductor giant Broadcom (NASDAQ: AVGO)
stock been in a powerful uptrend since bottoming out at the height of the COVID-19 pandemic in March 2020. Shares have more than doubled off the lows, rising more than 30% in the last two months of 2020. The rise in shares is backed by solid growth and incredible 73.5% gross margins. The stock pulled back off all-time highs and is tracking with the benchmark S&P 500 index (NYSEARCA: SPY)
performance year-to-date (YTD) in 2021. The high profile hacking of the Solar Winds (NYSE: SWI)
platform triggered a stampede into well-known cybersecurity stocks
like CrowdStrike (NASDAQ: CRWD)
, Palo Alto Networks (NYSE: PANW)
and FireEye (NASDAQ: FEYE)
. Whether these firms saw an uptick in business as a result remains to be seen with the upcoming earnings season. If so, then Broadcom should be a benefactor as well with its Symantec enterprise security products as well as its Norton and LifeLock products. While cybersecurity is a small but synergistic division within the Company’s ecosystem, it could be an overlooked growth driver in the era of cybersecurity protocols. Prudent investors seeking exposure can monitor these opportunistic pullback levels to consider for entries.
Q4 FY 2020 Earnings Release
On Dec. 10, 2020, Broadcom released its fiscal fourth-quarter 2020 results for the quarter ending October 2020. The Company reported an earnings-per-share (EPS) profit of $6.35 excluding non-recurring items versus consensus analyst estimates of $6.20, a $0.15 beat. Revenues rose 12% year-over-year (YoY) to $6.47 billion beating analyst estimates of $6.43 billion. The Company raised its fiscal Q1 2021 guidance for the quarter ending in January 2021, with revenues of $6.60 billion versus $6.49 billion consensus analyst estimates and adjusted EBITDA of $3.90 billion versus consensus estimates of $3.75 billion. The quarterly dividend was raised by11% to $3.60 per share.
Conference Call Takeaways
Broadcom CEO, Hock Tan, provided color on Q4 performance. Semiconductor Services revenues were $4.8 billion, up 6% YoY. Networking, which represents 35% of the Semiconductor Services saw revenues rise 17% YoY with continued strength in cloud datacenter spending and telco upgrades to Edge and core networks. Broadband represents 14% of Semiconductor Solutions, saw 22% YoY growth driven by the work-at-home trends, “… and the need for service providers as well as consumer to upgrade broadband connectivity too, as well as within the home. We experienced strong adoption of Wi-Fi 6 in next-generation access gateways in telcos and consumers.” CEO Tan noted that Broadcom is the leader in this Wi-Fi environment. Wireless revenues represent 31% of Semiconductor Services saw a 43% sequential quarterly growth in Q4 with the launch of a new generation flagship phone by a major client but was down (-9%) YoY due to the one-quarter delay in ramp-up production. Broadcom expects the next quarter to be the peak of the seasonal ramp and expect a return to 50% YoY quarterly growth. Server storage, representing 14% of Semiconductor Services were down (-9%) YoY as the Company expects the bleeding to continue to as much as (-20%) YoY. Infrastructure Software was $1.6 billion, up 36% YoY. Symantec revenues were $380 million, up 10% YoY and up 12% when factoring in the Computer Associates (CA) segment. Bookings have continued to double on an annualized basis which more than offsets declines outside the core enterprise customers. The Company had free cash flow of $3.2 billion, up 36% YoY. Total debt was reduced by $3 billion in the quarter. The Company ended the quarter with $7.6 billion in cash with $12.6 billion of liquidity which includes the $5 billion revolver, ending the quarter with $41.1 billion in debt.
JP Morgan Top Semiconductor Pick for 2021
On Dec. 19, 2020, JP Morgan (NYSE: JPM) provided they outlook for semiconductor to grow revenues 5% YoY in 2021. Industry growth is pegged at 8% to 10% and earnings growth at 15% to 18% YoY. This results in semiconductor stocks to garner 15% to 20% upside in 2021 with overweighted stocks to appreciate more than 20%. They named Broadcom as their top semiconductor pick of 2021. Needless to say, share rallied from $432 to a peak of $458.50 on the recommendation into 2021. On Jan. 5, 2021, Broadcom raised $10 billion in various senior note offerings to repay existing notes. The offering is expected to close Jan. 19, 2021. Shares pay a 3.23% dividend yield. Prudent investors looking to gain exposure should monitor opportunistic pullbacks levels for entries.
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AVGO Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the playing field for AVGO shares. The monthly rifle chart formed a near parabolic uptrend that peaked near the $462.50 Fibonacci (fib) levelwith a rising 5-period moving average (MA) at still trying to catch up at $399.85 just above the $396.74 fib level. The monthly market structure low (MSL) buy triggered above $292 and a daily MSL triggered about $359.24. The daily market structure high (MSH) formed a sell trigger under $440.66. While the monthly stochastic is stalled out near the 100-band, the weekly stochastic is still trying to trigger a mini pup above the weekly 5-period MA at $439.07. Prudent investors should monitor opportunistic pullback levels at the $427.20 fib, $409.30 fib, $396.74 fib, $384.17 fib and the $374.03 fib. The upside trajectories range from the $478.25 fib up towards the $572.21 fib level.
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