Broadcom Inc. (AVGO), a prominent global technology leader, is set to unveil its fiscal fourth-quarter financial results on December 7. Analysts anticipate a 4.9% year-over-year increase, projecting quarterly earnings of $10.96 per share, with revenue expected to reach $9.28 billion, reflecting a 3.9% growth from last year's corresponding period.

Before delving into AVGO's fundamentals, let’s assess the recent developments that may impact the company's future performance.

On November 22, AVGO completed its acquisition of VMware, Inc., emphasizing a strategic focus on empowering enterprise clients in building and enhancing private and hybrid cloud environments.

AVGO plans substantial investment in VMware Cloud Foundation, the fundamental software stack for such cloud frameworks, ensuring robust infrastructure development. AVGO's commitment extends beyond infrastructure, as VMware will provide an extensive catalog of services to revamp and optimize cloud and edge environments.

This includes VMware Tanzu for expediting application deployment, Application Networking for load balancing, cutting-edge Advanced Security services, and VMware Software-Defined Edge tailored for telecommunications and enterprise edges. This move would allow AVGO to capitalize on the growing demand for advanced cloud solutions and fortify its presence in the rapidly evolving digital landscape.

Shares of AVGO have gained 15.2% over the past six months and 74.1% over the past year to close the last trading session at $923.97.

Here are the financial aspects of AVGO that could influence its performance in the near term:

Solid Recent Financials

For the fiscal third quarter that ended July 30, 2023, AVGO’s non-GAAP net revenue increased 4.9% year-over-year to $8.88 billion. Its adjusted EBITDA grew 7.9% from the year-ago value to $5.80 billion. Also, non-GAAP net income and non-GAAP EPS rose 8.4% and 8.3% from the prior year’s period to $4.60 billion and $10.54, respectively.

Sound Historical Growth

Over the past three years, AVGO’s revenue and EBITDA increased at 15.2% and 24.7% CAGRs, respectively. Its net income and EPS grew at 77.6% and 83.2% CAGRs, respectively. In addition, the company's levered free cash flow rose at a 6.9% CAGR over the same time frame.

Positive Analyst Estimates

The consensus revenue estimate of $35.80 billion for the fiscal year ending October 2023 reflects a 7.8% year-over-year improvement. Likewise, the consensus EPS estimate of $42.03 for the ongoing year exhibits an 11.7% rise from the previous year. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters.

Discounted Valuation

In terms of forward non-GAAP P/E, AVGO is trading at 22.13x, 1.8% lower than the industry average of 22.54x. Moreover, its forward non-GAAP PEG of 1.79x is 7.4% lower than the 1.93x industry average. Also, AVGO’s forward Price/Cash Flow of 21.30x is marginally lower than the 21.38% industry average.

Robust Profitability

AVGO’s trailing-12-month gross profit margin of 72.27% is 52.6% higher than the industry average of 48.67x. Its trailing-12-month EBITDA margin of 57.34% is 526.5% higher than the 9.15% industry average. Also, the stock’s trailing-12-month net income margin of 39.25% compares to the 2.20% industry average.

Furthermore, CRM’s trailing-12-month ROCE, ROTC, and ROTA of 64.57%, 16.63%, and 19.44% compare to the industry averages of 1.01%, 2.60%, and 0.26%, respectively.

POWR Ratings Show Promise

AVGO’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AVGO has an A grade for Quality, which is in sync with its higher-than-industry profitability. In addition, it has a B grade for Momentum. The stock is trading above its 50-day and 200-day moving averages of $888.68 and $787.16, respectively.

AVGO is ranked #13 in the 91-stock Semiconductor & Wireless Chip industry. Click here to access AVGO’s Growth, Value, Stability, and Sentiment ratings.

Bottom Line

AVGO's acquisition of VMware and strategic emphasis on empowering enterprise clients in cloud development, coupled with substantial investments in VMware Cloud Foundation and a comprehensive catalog of services, positions AVGO to capitalize on the rising demand for advanced cloud solutions.

This move is also expected to strengthen the company's foothold in the dynamic digital landscape. Furthermore, the company's optimistic analyst projections, robust profitability, and strong financials point to an even brighter future, signaling a buy ahead of its forthcoming earnings release.

How Does Broadcom Inc. (AVGO) Stack Up Against Its Peers?

While AVGO has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy) rated stocks within the Semiconductor & Wireless Chip industry: STMicroelectronics N.V. (STM), ChipMOS TECHNOLOGIES INC. (IMOS), and Everspin Technologies, Inc. (MRAM). For exploring more A-rated Semiconductor & Wireless Chip stocks, click here.

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AVGO shares were trading at $908.56 per share on Tuesday morning, down $15.41 (-1.67%). Year-to-date, AVGO has gained 65.43%, versus a 20.56% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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