Broadcom slides on dim sales outlook

Bloomberg

Broadcom Inc. shares tumbled after the chipmaker cut its full-year sales outlook, citing the impact of the trade war between China and the US.
While the weaker guidance didn’t come as a shock, the scale of the reduction caught some analysts off guard, and it was seen as further diminishing the idea that semiconductor demand would rebound in the second half of the year.
Several sell-side firms cut their price targets following Broadcom’s results and outlook. But most still found some positive takeaways in the company’s valuation or its profit margins. “We don’t believe the sky is falling,” Barclays wrote, pointing to the company’s capital-return program. Citi’s report was entitled, “Here’s the bottom and it ain’t that bad.”
The stock sank as much as 8.6 percent, its biggest intraday percentage decline since January.
“Broadcom is throwing out the entire kitchen with the kitchen sink with its new guidance,” which seems “excessively conservative,” said Piper Jaffray analyst Harsh Kumar.
While the company’s exposure to Huawei was well known, “we were a bit surprised to see slower demand due to broader macro uncertainty.” Affirmed overweight rating and $305 price target.
According to Christopher Danely, analyst at Citi, “Here’s the bottom and it ain’t that bad.” Lowers price target to $300 from $320 but affirms buy rating “as we believe EPS is close
to a bottom and due to valuation”, as it is trading below the multiple of its peers.
Morgan Stanley’s Craig Hettenbach said, “The negative outlook is above and beyond the impact that had been expected from Huawei,” and this should quiet calls that the industry will see a “snapback” in the second half of the year.
The fact that customers are becoming cautious on demand and looking to reduce inventory because of intensified trade rhetoric “is a development to watch.”
While negative on Broadcom’s business in the near term, the forward outlook is “balanced by the company’s industry leading margins.” Equal-weight rating, price
target $250 from $262.
According to Mark Lipacis, analyst at Jefferies, “despite near-term risks related to trade, “longer term, our base case assumes the trade conflict resolves, or demand for Huawei equipment translates to other [original equipment manufacturers], aggregate semiconductor demand returns to normal growth and semis benefit from an inventory restock before the end of the year.” Broadcom’s current valuation is “attractive.”
Barclays’ Blayne Curtis said the lower outlook “is a bigger revision than what was expected but we don’t believe the sky is falling and we still think the strong capital return story keeps a bottom in the stock.”
Hopefully the outlook for the second half of the year “proves conservative should the trade tensions resolve.” Rated overweight. Price target $315 from $360.