What Caused Friday’s Rally in Broadcom Shares

Broadcom Inc.

Brief History 

  1. Last night, the company reported revenues and profitability that surpassed expectations, and the company also provided optimistic earnings and revenue forecasts for the future.
  2. Although the stock is being bid up by investors today, Broadcom stock still appears inexpensive.

Broadcom (NASDAQ:AVGO)

After reporting a significant earnings beat on Thursday night, shares of Broadcom (NASDAQ:AVGO) climbed in Friday trading. For its fiscal third quarter of 2022, the company announced pro forma profits of $9.73 per share, which was over Wall Street’s forecast of $9.56 per share, and sales of $8.5 billion, which was above Wall Street’s forecast of $8.4 billion.

Broadcom stock is up 4.7% as of noon ET today.

What’s the Reason?

Revenue at Broadcom increased by 25% year over year, and GAAP quarterly earnings per share increased by 70% to $7.15. (GAAP). On the other hand, the news was even better than that.

Broadcom (NASDAQ:AVGO) reported a free cash flow of $4.3 billion, 51% of its revenue and 40% higher than its reported net income for the quarter. S&P Global Market Intelligence reports that the company has generated a positive free cash flow of $15.3 billion in the last four quarters. This is more than twice as much as the company reported as net income, and with a market cap of just under $200 billion, the company stock costs barely 13 times free cash flow.

What Next?

Is that a fair price or too much?

From where I’m sitting, that seems like a fantastic deal. Broadcom (NASDAQ:AVGO) earnings will be predicted to increase at a rate of more than 15% each year over the next five years. The stock trades at 13 times free cash flow, and the total return ratio is a highly appealing 0.7 when considering both the stock price and the dividend yield (3.3% yield).

Although, this strategy will only pay off if Broadcom (NASDAQ:AVGO) grows at the rate experts anticipate. I still think the company is headed in the right direction, as management has projected that Q4 sales will increase by 20% year over year to around $8.9 billion. If current the company investors saw these data, they might buy the stock more enthusiastically.

 

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About the author: I'm a financial journalist with more than 1.5 years of experience. I worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan. I love to write about marketing and finance. Other than that, I like spending time in the gym and playing PC games.