A reported deal between semiconductor giant Broadcom (AVGO) - Get Broadcom Inc. Report and software maker SAS Institute is being greeted with enthusiasm by Wall Street analysts, who see a potential deal between the two companies as a complementary strategic fit.
The Wall Street Journal reported Monday that Broadcom is in talks to buy SAS Institute in a deal ranging between $15 billion to $20 billion. Broadcom has a market value of nearly $200 billion after its shares have risen around 50% over the past year.
Broadcom, a semiconductor powerhouse built largely through acquisitions, has been on the hunt for more deals since former President Donald Trump blocked its quest to buy rival Qualcomm (QCOM) - Get QUALCOMM Incorporated Report in 2018, citing security risks.
Broadcom analysts were mostly positive reports of a possible SAS agreement, noting that such a deal would be consistent with the company’s strategy of diversifying into corporate-focused software and related services.
BMO Capital Markets noted that a deal with SAS “fits into the profile of the kind of business Broadcom would be interested in.” The bank has an outperform on Broadcom with a one-year price target of $550.
Truist Securities said a deal “would be strategically consistent for AVGO,” noting if Broadcom raises debt to fund the deal, net leverage would remain “manageable,” adding the deal would be accretive to both earnings and free cash flow. Truist has a buy rating on the stock and a price target of $554.
Morgan Stanley took a more conservative view, noting a deal “would fit with Broadcom’s overriding strategy to develop deeper relationships with large enterprises,” but that its software strategy “remains a key debate for the stock,” adding that “the ability to generate management’s target of at least 10% cash on cash returns” would be a key question.
They have an overweight rating on the stock with a price target of $555.
At last check, Broadcom shares were down 0.4% at $483.79. The stock has risen more than 14% year to date.