Analyst Note| Abhinav Davuluri, CFA |
Broadcom reported strong fourth-quarter results ahead of our expectations. The firm’s results were buoyed by healthy networking demand led by cloud data center spending and sharp wireless growth. Broadcom’s product portfolio is well tailored to address the work-from-home environment and we expect continued double-digit top-line growth next quarter, especially as enterprises resume infrastructure technology spending consistent with the COVID-19 recovery. We remain positive on Broadcom’s networking, storage, and broadband business units, and we applaud the firm’s integration efforts of its software acquisitions such as Symantec and CA Technologies. Management is optimistic that recent tailwinds will continue into 2022, with robust bookings and lean inventories. Consequently, we are raising our fair value estimate to $500 per share from $400 as we roll our model forward and incorporate stronger top-line growth as well as operating leverage. Shares rose 6% during after-hours trading and are trading close to our bull case valuation. We recommend prospective investors wait for a wider margin of safety before investing in narrow-moat Broadcom.