Broadcom Crowned a Morgan Stanley Top Pick, But Is It All Sunshine and Daisies?

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Semiconductor designer and manufacturer Broadcom (AVGO) - Get Report got the royal treatment from Morgan Stanley on Tuesday, who named the company a "top pick" and upgraded both its rating and one-year price target on expectations of strong demand for its software offerings going forward. 

In a note to clients, Morgan Stanley analyst Craig Hettenbach upgraded Broadcom to overweight from equal weight and raised his 12-month price target to a Wall Street high of $367 from $298, noting he and his group had "increased confidence" in the company's software strategy, particularly its diversification efforts on the software-offerings front.

Specifically, Hettenbach and his group praised Broadcom's recent acquisitions, including CA Technologies and certain assets of Symantec (SYMC) , noting Broadcom is "particularly well positioned in the Data Era" because it "can build on its leadership position in semis while leveraging its strong [free cash flow] to diversify into software."

The analyst also noted that company's risk profile is "significantly more compelling than our broader semis coverage," and that "... a premium multiple could ultimately be warranted," given its profitability and diverse business segments.

To be sure, it's not all sunshine and daisies for Broadcom, which last week was ordered by the European Competition Commission to stop its exclusivity deals with six TV and modem companies, who are investigating whether those deals hinder competition.

The European Competition Commission has not made such a stopgap order in 18 years, according to Reuters. Broadcom responded to the order by saying that the decision will not have a material impact on its business.

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