Broadcom rises as Benchmark starts coverage, sees 25% upside
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Broadcom (NASDAQ:AVGO) shares rose fractionally in premarket trading on Thursday as investment firm Benchmark started coverage on the semiconductor company.
Analyst Cody Acree initiated Broadcom (AVGO) shares with a buy rating and a per-share price target of $770, implying 25% upside from current levels, noting the company's history of acquisitions and organic growth have allowed it to become the second largest chip company by market cap, behind Nvidia (NVDA).
"Through its strategic process of aggressive acquisitions and prudent divestitures, Broadcom has not only developed a very diverse product set, end markets, and customer base, but it has done so in a way that creates expense and sales synergies, delivers high margins, and is levered to many of the industryâs fastest growing markets, focused primarily on wireline and wireless connectivity, data center, storage, and infrastructure software," Acree wrote in an investor note.
Acree added the company's strong financial position, including record adjusted EBITDA margin of 63% and $16.3B in free cash flow in its most recent quarter, highlight its "stable and attractive business model," despite the current problems in the semiconductor industry.
Broadcom (AVGO) is looking to move beyond semiconductors, with its pending $61B acquisition of VMware (NYSE:VMW), which Acree ultimately believes will be successful.
Assuming the deal closes, Acree believes the VMware (VMW) could become a "strong" fourth web services competitor, going up against the likes of Amazon Web Services, Microsoft Azure and Google Cloud Services, Acree posited.
On Wednesday, the European Commission sent Broadcom (AVGO) a "statement of objections" over its proposed deal to buy VMware (VMW), citing several concerns.