Estimates for Broadcom Corporation (BRCM) have been on the upswing in the last seven days after the company reported solid results for the third quarter of 2010. Both the top-line and bottom-line numbers recorded solid growth in the quarter, which beat expectations. The company also provided better-than-expected guidance for the fourth quarter.
The strong results and better-than-expected guidance led to a significant increase in earnings estimates from the analysts covering the stock. Consequently, the stock price has moved to $41.49 (as of November 3, 2010) from $37.58 (before the earnings release).
Earnings Report Flashback
Broadcom generated revenues of $1.806 billion in the third quarter of 2010, up 44% year over year and up 12.6% sequentially. The results surpassed management’s revenue guidance of $1.7 – $1.8 billion and the Zacks Consensus Estimate of $1.749 billion. The sequential growth in the quarter was propelled by strength in Mobile and Wireless and Broadband businesses, which were up 27% and 6%, respectively.
Broadcom posted a net income of $327.1 million or 60 cents per share compared to a net income of $278 million or 52 cents in the second quarter and a net income of $84.6 million or 16 cents in the year-ago quarter. The reported figure easily beat the Zacks Consensus Estimate of 56 cents.
The full coverage on the third quarter earnings is provided here: Broadcom Beats Expectations
Earnings Estimate Revisions — Overview
Following the release of strong results and upbeat guidance, estimate revisions depict a strong positive sentiment among analysts for the upcoming fourth quarter, year 2010 and year 2011 as well.
Agreement of Estimate Revisions
Out of the 25 analysts covering the stock, 22 analysts have upped their estimates for 2010 in the last seven days. For the fourth quarter, twenty-one analysts have increased their estimates.
Based on customers’ order plans and solid traction and new product ramps, Broadcom expects healthy growth in the fourth quarter from its Wireless Connectivity business and a substantial increase in sales from cellular solutions (Apple’s iPad in particular).
Most analysts are positive about 2011 as well and expect solid growth from Broadcom. For 2011, out of the 25 analysts covering the stock, 21 analysts have upped their estimates in the last seven days.
Magnitude of Estimate Revisions
Not only is there strong directional consensus among analysts covering the stock, the magnitude of increase in estimates is noteworthy as well.
The current Zacks Consensus Estimate for 2010 is $2.12, up by 11 cents in the last seven days. The current Zacks Consensus estimate for the fourth quarter is 60 cents, up by 6 cents in the last seven days.
The estimates in the current Zacks Consensus for fourth-quarter 2010 range from a low of 53 cents to a high of 63 cents. For fiscal 2010, the estimates range from $2.05 to $2.22.
The most significant increase in estimates was for 2011 indicating strong positive sentiment among analysts. The current Zacks Consensus Estimate for 2011 is $2.34, up by 16 cents in the last seven days.
Our Take
Broadcom is focused on the most innovative technologies related to connectivity, bandwidth and content. The continued expansion of pay-TV and Internet access services internationally, especially in China and India, provide significant opportunity for growth.
Broadcom is well placed in the fast-growing wired and wireless communications markets, with cutting-edge solutions for a growing number of connected users who are demanding more content and bandwidth. The market for wireless connectivity devices are expected to grow, driven by the increasing demand for smartphones, tablets, netbooks and digital TVs.
Broadcom’s product leadership and solid financial performance and strong cash flow generation continue to be strong positives. The company recently initiated a quarterly dividend of $0.08 per share, which translates into a dividend yield of 0.9%.
Broadcom currently carries a Zacks #2 Rank, which translates into a short-term rating of Buy. In the long run, Broadcom has a Neutral recommendation as margins might be under pressure from the accelerated new product ramps, which typically carry lower margins. Moreover, chip sales are likely to be volatile due to an expected slowdown in consumer demand and an increase in inventories.
BROADCOM CORP-A (BRCM): Free Stock Analysis Report
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