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TheStreet Open House

Why Avago Technologies (AVGO) Is Up Today

NEW YORK (TheStreet) -- Avago Technologies  (AVGO) hit an all-time high of $63.49 as of 11:47 a.m. EST on Wednesday morning after the chipmaker announced first-quarter results that surpassed analysts' expectations.

Avago, which makes analog semiconductors, reported a net income increase to $134 million, or 53 cents a share, from $125 million, or 50 cents a share, in the same period one year earlier. Earnings per share were 84 cents, excluding items. Revenue also increased 23% to $709 million. These figures beat analysts' expectations of EPS of 78 cents on revenue of $705.3 million, according to Thomson Reuters I/B/E/S.

Avago also forecast a second-quarter sales decline of 3% to 6% due to a loss in revenue from a smartphone manufacturer.

"In the first fiscal quarter of the year, we experienced significant growth in our wireless and wired infrastructure end markets and a clear recovery in our industrial as we compare revenue to the same quarter a year ago," said President and CEO Hock Tan in the company's statement. "While we expect this broad based improvement to sustain into the second fiscal quarter, measured on a year over year basis, this will be overshadowed by a sequential decline in our wireless revenue resulting from the annual product transition at a major smartphone OEM customer."

The statement did not name the company, but Avago's customers include Apple  (AAPL), Samsung, LG and Huawei Technologies.

Must Read: New Lifetime High Reached By Avago Technologies (AVGO)

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TheStreet Ratings team rates AVAGO TECHNOLOGIES LTD as a "buy" with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate AVAGO TECHNOLOGIES LTD (AVGO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.9%. Since the same quarter one year prior, revenues rose by 19.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • AVGO's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.39, which clearly demonstrates the ability to cover short-term cash needs.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 70.17% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AVGO should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The gross profit margin for AVAGO TECHNOLOGIES LTD is rather high; currently it is at 54.61%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 23.30% is above that of the industry average.
  • AVAGO TECHNOLOGIES LTD has improved earnings per share by 6.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AVAGO TECHNOLOGIES LTD reported lower earnings of $2.19 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($3.31 versus $2.19).
  • You can view the full analysis from the report here: AVGO Ratings Report

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