Will Broadcom (AVGO) Keep The Earnings Streak Alive In Q4?

We expect Broadcom Limited (NASDAQ:AVGO) to beat expectations when it reports fourth-quarter fiscal 2017 results on Dec 8.

Why a Likely Positive Surprise?

Our proven model shows that Broadcom is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Broadcom’s Earnings ESP stands at +1.73%. This is because the company’s Most Accurate estimate stands at $2.94 while the Zacks Consensus Estimate is pegged lower at $2.89. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Broadcom currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that stocks with a Zacks Rank #1 (Strong Buy), #2 or #3 (Hold) has a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Broadcom’s +1.73% ESP and Zacks Rank #2 makes us reasonably optimistic of an earnings beat.

What's Driving the Better-than-Expected Earnings?

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 its exposure to volatility in any single market.

BROADCOM LTD Price and EPS Surprise

Notably, Broadcom has beaten earnings estimates in each of the last four quarters with an average positive earnings surprise of 7.00%. However, the company’s return of 13.14% compared unfavorably with the Zacks Elec-Semiconductors Industry’s gain of 38.77% on a year-to-date basis.

Nevertheless, we believe the stock will rebound going ahead driven by its strong product portfolio, impressive pipeline and continuing cost-synergy realization from the Avago merger. Moreover, the IT platform integration is expected to help lower operating expenses.

Early November, the company revised its revenue outlook, which is now anticipated to be in the range of $4.100 billion to $4.175 billion. GAAP gross margin is still projected at 60.5% (+/- 1%), while operating expenses are estimated to be approximately $108 million.

Management expects wired revenues to remain flat sequentially, as the company tries to resolve supply constraints. Wireless revenues are anticipated to surge more than 30% on a quarter-over-quarter basis. Enterprise storage is anticipated to grow in the low single digits sequentially driven by positive end-market seasonality.

However, industrial revenues are expected to decline 20% sequentially due to lower channel shipments as the company heads toward the seasonally weaker part of the calendar year.

Other Stocks to Consider

Here are some companies you may consider as our proven model shows they too have the right combination of elements to post an earnings beat this quarter:

Asure Software (NASDAQ:ASUR) has an Earnings ESP of +12.5%. It sports a Zacks Rank #1.

Marvell (NASDAQ:MRVL) also sports Zacks Rank #1 and has an Earnings ESP of +8.33%.

Micron Technology (NASDAQ:MU) , with an Earnings ESP of +4.17%, flaunts a Zacks Rank #1.

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