Last week, you might have seen that Broadcom Inc. (NASDAQ:AVGO) released its first-quarter result to the market. The early response was not positive, with shares down 4.2% to US$450 in the past week. Broadcom reported US$6.7b in revenue, roughly in line with analyst forecasts, although statutory earnings per share (EPS) of US$3.05 beat expectations, being 3.4% higher than what the analysts expected. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Following the latest results, Broadcom's 28 analysts are now forecasting revenues of US$26.5b in 2021. This would be a satisfactory 7.3% improvement in sales compared to the last 12 months. Statutory earnings per share are predicted to leap 31% to US$11.85. Before this earnings report, the analysts had been forecasting revenues of US$26.3b and earnings per share (EPS) of US$11.69 in 2021. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.
The consensus price target rose 5.1% to US$498despite there being no meaningful change to earnings estimates. It could be that the analystsare reflecting the predictability of Broadcom's earnings by assigning a price premium. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Broadcom at US$600 per share, while the most bearish prices it at US$350. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Broadcom's past performance and to peers in the same industry. It's pretty clear that there is an expectation that Broadcom's revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 9.9% growth on an annualised basis. This is compared to a historical growth rate of 16% over the past five years. Compare this to the 124 other companies in this industry with analyst coverage, which are forecast to grow their revenue at 8.3% per year. Factoring in the forecast slowdown in growth, it looks like Broadcom is forecast to grow at about the same rate as the wider industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Broadcom analysts - going out to 2023, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Broadcom (at least 1 which is potentially serious) , and understanding these should be part of your investment process.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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