Broadcom (AVGO) To Report Q3 Earnings: What's In The Cards?

Broadcom Limited (NASDAQ:AVGO) is set to release third-quarter fiscal 2017 results on Aug 24. Last quarter, the company delivered a positive earnings surprise of 9.82%. Earnings surged almost 46% from the year-ago quarter and 1.7% sequentially to $3.69 per share, driven by solid top-line growth.

Non-GAAP revenues from continuing operations were $4.20 billion, which was better than management’s guidance and the Zacks Consensus Estimate of $4.10 billion. The figure increased 17.9% from the year-ago quarter and 1.3% on a sequential basis.

For third-quarter fiscal 2017, Broadcom forecasts non-GAAP revenues of almost $4.45 billion (+/- $75 million). The figure reflects almost 6% sequential growth. The Zacks Consensus Estimate is currently pegged at $4.44 billion.

Broadcom has been one of the consistent performers in the semiconductor space. We note that the company delivered positive earnings surprises in all of the trailing four quarters, with an average beat of 5.34%.

The stock has gained 41.1% year to date, substantially outperforming the 23% rally of the industry it belongs to.

However, we note that the Brocade acquisition is now expected to close in October instead of July. The company cited extended CFIUS review behind the delay. We believe that this will remain an overhang on the stock in the near term.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Broadcom’s extensive product portfolio serves multiple applications within four primary end markets – wired infrastructure, wireless communications, enterprise storage and industrial & others. The company’s focus on multiple target markets and geographies mitigates operating risks and lessens exposure to volatility in any single market.

We note that seasonal strength in broadband access and sustained cloud data center spending is positive. Moreover, the company's expanding portfolio is a key driver. Further, anticipated content increase at Apple’s (NASDAQ:AAPL) upcoming iPhone will drive earnings growth.

Earnings Whispers

Our proven model does not conclusively show that Broadcom is likely to beat earnings in the soon-to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Broadcom is -0.34%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Broadcom has a Zacks Rank #2 which increases the predictive power of ESP. However, the company’s -0.34% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of stocks you may want to consider as our model shows that they have the right combination of elements to post an earnings beat:

The Toronto-Dominion Bank (TO:TD) has an Earnings ESP of 1.18% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots (NYSE:BIG) has an Earnings ESP of 0.72% and holds a Zacks Rank #2.

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