Last week, Broadcom (AVGO) released its fourth-quarter earnings results. Not only did the company beat on earnings and revenue forecasts, but it provided guidance that came in well ahead of analysts’ expectations.
Based on consensus expectations, Broadcom’s growth was still reasonable for 2019. With even better results on the way, an investment thesis in Broadcom looks even more appealing. However, there are other major positives to take away as well.
For starters, the company upped its dividend by 51%, now paying out $2.65 per share each quarter. That amounts to a dividend yield of more than 4.6%, a very competitive and attractive payout in this type of market.
Further, consider Broadcom’s valuation now. Shares trade at less than 10.5 times 2019 earnings expectations, (the fiscal year that Broadcom is now operating in). Forecasts call for roughly 10% growth this year and another 14.5% growth in fiscal 2020.
On the sales front, analysts are looking for revenue of $24.4 billion this year, up 17.7% from fiscal 2018. One reason consensus revenue expectations for 2019 were so low? Not all analysts weren’t accounting for the company’s $18.9 billion acquisition of CA Technologies. Still, growth is impressive, with estimates calling for another 5.5% gain in 2020.
Lastly, Broadcom plans to buy back roughly $8 billion worth of stock in fiscal 2019, pretty noteworthy for a company that trades with a $98 billion market cap.
Trading Broadcom Stock
OK, so we can acknowledge that Broadcom had a monster quarter, right? Earnings and revenue are set to grow at attractive rates and management is buying back plenty of shares, while the stock yields over 4.5% and trades at just 10.5 times this year’s earnings?
It seems that investors are realizing the situation too, with Broadcom stock up more than 4% on Monday while the broader market struggles for direction. Many are wondering whether the rally can continue.
A look on the charts says we need to see Broadcom stock climb above the $240 to $245 level. A close above this area (highlighted by the blue line on the chart) will put Broadcom above downtrend resistance. Should it test this level and fail to breakout, look for a retest of the 200-day moving average.
In fact, most of Broadcom’s major moving averages are located within a few dollars of each other. While this would typically provided solid support — like in our outlook for Tesla (TSLA) — Broadcom has been very choppy near these levels.
Should they fail to act as support, look for a test of uptrend support (black line). A close below this level would warrant another examination of Broadcom stock.