AVGO
pre-earnings update. This is a large long-term holding for me and it has been one of my best performers. I am not looking to add at this time and would be taking profit if my cost basis wasn’t already so favorable. There is a lot to like about AVGO. Great dividend growth history, consistently outperforming earnings expectations, strong management team, and very easy to manage with basic technical analysis. They report earnings late in the cycle relative to other semis, which occasionally offers great opportunities when other chip companies have poor earnings.
- Bull thesis - they excels in operating efficiency, have strong management team, and strong Apple hardware integration
- Bear thesis - large exposure in in nonmoaty sectors (broadband and storage chips), low-growth software markets, and acquisition-focused strategy
Last earnings:
- Good: Revenue beat, EPS beat, and increased guidance by 5%.
- Bad: Management was asked about AI related growth cannibalizing current business. Management had a relatively weak answer to this that sent price on a roller coaster.
- Average 12 month price target consensus increased from $763 to $908.
To keep momentum going this earnings will likely need to beat and raise guidance in line with others in the sector, and will need to give clearer direction on product cannibalization.
Technical:
This is a great long term trend, but price has moved above the primary trend along with the entire sector. This will either be a new primary trend or will prove to be unsustainable. It feels like the latter, but sentiment for the AI narrative has been resilient.
Last earnings price jumped with a breakaway gap and then formed a symmetrical triangle. 75% of breakaway gaps close within a year and the average time to close is 83 days. AVGO's gap is currently at 96 days. Price broke below the cradle of the symmetrical triangle and left another small gap in its recovery. Longer term, I'm still eying opportunities to add below $820. My targets are currently $808, 790, 750, and 730.