Expecting substantial near-term growth, a Citigroup Smith Barney analyst raised his full-year estimates and price target on cable and satellite company
"It is an open secret that Broadcom's business is doing very well," said analyst Clark Westmont in a research note. New products, such as personal video recorders, gigabit Ethernet and chips for wireless local area networks are driving sales above second quarter guidance of a sequential 12% to 14% increase, he said. Further, in the first quarter, the company reported a 11% quarter-over-quarter increase.
But the news isn't all good for Broadcom. Westmont sees it losing 30% of PC server chipset market share to
by the fourth quarter of 2004. This would then diminish the next year's earnings, he said.
Additionally, Westmont warned that investors seem to be focused on Broadcom's near-term prospects, while "the future is a problem for another day." Historically, he said, most chip stock investors overlook near-term issues and focus on longer-term prospects.
Westmont noted that the stock was down below $12 three months ago largely due to challenges in its ServerWorks business. He estimates, however, that unit will bring in more than half of the company's operating profit this year. "Longer-term, investors should monitor the PC server chipset developments closely to determine the feasibility of 2004 earnings projections," said Westmont.
The analyst now expects the company to earn 49 cents a share for the year, up from 37 cents a share. For 2004, Westmont upped his guidance to 70 cents a share, from 60 cents a share. The company's price target goes to $28 from $17.
Shares of Irvine, Calif.-based Broadcom were recently down about 5% at $27.60 in