Option Trade 
Broadcom Ltd (NASDAQ:AVGO) Calls 
Wednesday, 1st June, 2016

** OPTION TRADE: Buy the AVGO July 15 2016 165.000 call at approximately $3.30. Place a pre-determined sell at $6.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.30.

by Ian Harvey

June 01, 2016

Broadcom Ltd (NASDAQ: AVGO), the combined entity that was formerly known as Avago and Broadcom, which is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions, is scheduled to report second-quarter fiscal 2016 results after the closing bell tomorrow, June 2. In the last reported quarter, Broadcom's adjusted earnings comfortably exceeded the Consensus Estimate by 15 cents.

The company has beaten earnings estimates in each of the last four quarters with an average positive earnings surprise of 6.6%. Let's see how things are shaping up for this announcement.

In the fiscal second quarter, Broadcom added Ethernet switching and routing, standard products, physical layer (PHY) copper, and optical standard products to its offerings. The company exhibited its PAM-4 PHY chips driving copper cables, which are designed for 100GbE, 200GbE and 40GbE data center interconnects, at the Optical Fiber Communication summit. Such innovative products are likely to augment the revenues of the company.

For the quarter, in addition to Avago classic RF FBAR (Film Bulk Acoustic Resonator) filters and power amplifiers, the company's wireless segment is likely to include classic Broadcom's wireless connectivity and custom analog handset solution. Broadcom expects the wireless segment to contribute approximately 23% of the company's total revenues from continuing operations.

Broadcom Limited traded up 0.69% during trading on Tuesday, hitting $154.36. 2,960,190 shares of the stock were exchanged. Broadcom Limited has a 12-month low of $100.00 and a 12-month high of $159.65. The stock has a 50 day moving average price of $148.72 and a 200-day moving average price of $139.61. The firm has a market capitalization of $60.27 billion and a PE ratio of 31.57.

Positive Input

BMO Capital Markets continues to be positive on the company's fiscal 2016 second quarter results due out Thursday after the market close.

In a note issued to investors yesterday, the firm reiterated its "outperform" rating on the stock with a price target of $185.

Analysts are looking for earnings of $2.38 a share on revenue of $3.55 billion for the recent period.

In February, Avago, which makes semiconductors for the cellular, automotive and defence industries completed its $37 billion-acquisition of Broadcom, the wireless chipmaker.

Ahead of earnings, "We see Broadcom continuing to execute through a challenging macro environment," analysts said.

It also appears that Broadcom's business is on track to deliver on the expectations for the April quarter.

Separately, TheStreet Ratings currently has a "Buy" rating on the stock with a letter grade of A+.

The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity and expanding profit margins. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Sell side firm Mizuho Securities has reiterated a Buy rating for Broadcom Ltd with a Price Target of $175 before the company announces its 2Q results.

Mizuho Securities in its report stated that it expects the semi-conductor company to report results in line with the expectations with revenue for the quarter of $3.6 billion along with Earnings per Share (EPS) of $2.37.

Analyst Vijay Rakesh at Mizuho Securities stated that the firm expects the quarterly results to be in line with the estimates mentioned above along with a slight adjustment for July ending quarter estimates for iPhone and also taking into account the HDD weakness.

The analyst commented that it expects strong iPhone buildup in 2H of this year, improving data center, and Broadcom Corporation's operational expenditure synergies present substantial upside to Broadcom Ltd stock and also places it in a better position.

He further mentioned that the sell side has slightly adjusted its estimates for the company along with maintaining a Buy rating for the stock.

The stock has managed to report positive performance for the year as it has appreciated by around 3.38% Year-to-Date (YTD). In the past five days of trading alone, the stock has gained around 6.28% reflecting positive confidence amongst the investors ahead of its results. If the company is able to report results in line with the expectations, or surpass the expectations, the stock can be expected to climb further north.

Broadcom Limited‘s stock had its “buy” rating reissued by equities research analysts at Deutsche Bank in a report released yesterday. They currently have a $180.00 target price on the semiconductor manufacturer’s stock. Deutsche Bank’s price target would indicate a potential upside of 17.42% from the company’s current price.

Also, several other equities research analysts have recently commented on the company.

• Broadcom Limited‘s stock had its “buy” rating reiterated by investment analysts at Brean Capital in a research report issued to clients and investors last Thursday.

• Broadcom Limited‘s stock had its “buy” rating reiterated by equities researchers at B. Riley in a research report issued to clients and investors on Saturday. They currently have a $190.00 price target on the semiconductor manufacturer’s stock. B. Riley’s price target indicates a potential upside of 23.94% from the stock’s current price.

• Broadcom Limited ‘s stock had its “buy” rating reissued by equities researchers at Mizuho in a research note issued to investors last Wednesday. They presently have a $175.00 target price on the semiconductor manufacturer’s stock. Mizuho’s target price would indicate a potential upside of 13.95% from the stock’s previous close.

Three equities research analysts have rated the stock with a hold rating, thirty-two have assigned a buy rating and two have given a strong buy rating to the stock. Broadcom Limited presently has an average rating of “Buy” and a consensus target price of $173.00.

Harvey’s Options Volatility Indicator


Wall Street analysts are looking for solid bottom-line growth compared to a year ago from Broadcom, as well as strong top-line growth from the semiconductor maker.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the AVGO July 15 2016 165.000 call at approximately $3.30. Place a pre-determined sell at $6.60.

Note: No protective stop losses added -- but if you wish to do so make it $1.30.

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