Broadcom Is Trading at a Discount, BMO Says, Lifting Shares to Outperform

Broadcom is trading at a discount, BMO says. The firm lifted its rating on the chip-equipment specialist's shares to outperform and affirmed its $330 price target.
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Broadcom  (AVGO) - Get Report shares are trading at a discount, according to BMO Capital analysts, who raised their rating on the chip-equipment specialist to outperform from market perform and affirmed their price target at $330 a share.

With the coronavirus weighing on the shares and the stock underperforming versus the rest of the sector, Broadcom sees an opportunity to get "a franchise name at an attractive valuation."

"We have been on the sidelines on [Broadcom] for some time, specifically since the company changed its course and bought CA" in November 2018, analyst Ambrish Srivastava said. 

"Since then we have been doing our work in understanding to the extent we can the software businesses, and we see a more coherent approach to free-cash-flow generation and growth via first the follow-up software acquisition of Symantec." 

The company's smartphone-related radio-frequency and connectivity segment is in good standing thanks to the company's supply deal with Apple  (AAPL) - Get Report. And its infrastructure business is also strong and distancing itself from its peers in the semiconductor group, Srivastava said. 

The firm sees this position as an opportunity for the company to generate superior free cash flow and to reduce debt on the balance sheet. 

A low-interest-rate environment could lead to a modest earnings-per-share upside for the company as well, he said.

The price target indicates 41% potential upside from the stock's Friday close at $234.22. 

On Monday the stock market was halted at the open as a flood of selling triggered a circuit breaker. At last check the San Jose, Calif., company's shares were off 12% at $205.68.