Option Trade 
Broadcom Ltd (NASDAQ:AVGO) Calls
Thursday, June 01, 2017

** OPTION TRADE: Buy the AVGO JULY 21 2017 250.000 CALL at approximately $5.50. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.20.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey                   

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 set to release second-quarter fiscal 2017 results today, June 1, after the market closes.

Analysts expect $3.02 earnings per share, up 41.78% or $0.89 from last year’s $2.13 per share. AVGO’s profit will be $1.21 billion for 19.75 P/E if the $3.02 EPS becomes a reality.

Last quarter, the company posted a positive earnings surprise of 5.63%. The company delivered positive earnings surprises in all of the trailing four quarters, with an average beat of 5.95%.

Earnings (excluding stock-based compensation) surged almost 60% from the year-ago quarter and 4.8% sequentially to $3.63 per share.

Moreover, Non-GAAP revenues from continuing operations were $4.149 billion, soaring a massive 132.8% from the year-ago quarter.

Notably, Broadcom has been one of the most consistent performers in the S&P 500 Index. Shares have increased almost 36.5% on a year-to-date basis as compared with Index's return of 8.3%.

Morgan Stanley raised its price target on Broadcom Limited to $265.00 (from $245.00) while maintaining a Overweight rating.

Analyst Craig Hettenbach believes earnings on June 1st should be solid, and expects upside to gross margin.

Broadcom Ltd has a 12-month low of $142.27 and a 12-month high of $242.89. The stock’s market cap is $96.12 billion. The company’s 50-day moving average price is $227.62 and its 200 day moving average price is $204.31.

Influencing Factors to Consider

Broadcom's extensive product portfolio serves multiple applications within four primary end markets - wired infrastructure, wireless communications, enterprise storage, and industrial & others. The company's focus on multiple target markets and geographies mitigates operating risks and lessens exposure to volatility in any single market.

For second-quarter fiscal 2017, Broadcom forecasts non-GAAP revenues of almost $4.100 billion (+/- $75 million). Management anticipates Wired Infrastructure business revenues to be a little bit stronger than the first quarter, driven by strong continuous momentum in demand from cloud data centers, and improving demand for broadband access and set-top box products.

Broadcom expects flat revenues at the Enterprise Storage segment due to seasonality. Industrial revenue is anticipated to increase sequentially in the high-single digits.

It is believed that the second-quarter result will benefit from strong adoption of Samsung's Galaxy 8, which uses Broadcom's chips.

Analysts and Hedge Funds Opinions

Mizuho Securities analyst, Vijay Rakesh, reiterated his Buy rating on shares of Broadcom Limited and raised his price target to $265 ahead of the company reporting earnings after the close on June 1. The analyst believes the company is well-positioned into 2H17 with share gains on the S8 and the iPhone 8 ramp.

The analyst believes that the real highlight could be July quarter guidance as strength from LCD iPhone 8 pre-builds and a stronger ramp of the S8 supports the company's outlook. Near-term data center commentary from key customer Cisco has been stable with continued networking ramps but the focus on the call will likely be on 2H iPhone 8 ramps and M&A and strategy around any potential Toshiba bids.

Loop Capital raised its price target on the chipmaker to 270 from 251, keeping a buy rating, ahead of Broadcom's second-quarter earnings out after the close on Thursday. RBC Capital raised its target for "Top Pick" Broadcom to 260 from 250.

Oppenheimer analyst Rick Schafer, who has an outperform rating on the stock, said Broadcom's Q2 results will likely reflect typical Apple (AAPL) seasonal softness, but he sees the company as a "standout beneficiary" of the iPhone 8.

The PT of $265 is up from $250.

Also, several brokerages recently weighed in on the company…..

  • Rosenblatt Securities restated a “buy” rating and set a $260.00 target price on shares of Broadcom in a research note on Wednesday.
  • Royal Bank of Canada boosted their target price on Broadcom from $250.00 to $260.00 and gave the stock a “top pick” rating in a research note on Wednesday.
  • Pacific Crest restated an “overweight” rating and set a $260.00 target price on shares of Broadcom in a research note on Wednesday. B. Riley restated a “buy” rating and set a $260.00 target price on shares of Broadcom in a research note on Tuesday.
  • Finally, Mizuho reiterated a “buy” rating and issued a $265.00 price objective (up previously from $250.00) on shares of Broadcom in a research note on Sunday.

Three research analysts have rated the stock with a hold rating, thirty-four have issued a buy rating and one has issued a strong buy rating to the company’s stock. Broadcom has a consensus rating of “Buy” and an average price target of $252.

Harvey’s Options Volatility Indicator


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

** OPTION TRADE: Buy the AVGO JULY 21 2017 250.000 CALL at approximately $5.50. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.


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