pepifoto
- Growth is healthy, both organically and inorganically. Upselling and an improved go-to-market strategy are leading to higher organic growth with great near-term revenue visibility.
- A revenue mix shift toward the software business makes a compelling case for margin expansion and a transition to a negative working capital profile.
- AVGO is valued at a small discount vs peers. Given growth and margin catalysts, I believe there is a case for margin expansion and a premium multiple.
- Relative technicals vs the S&P 500 point bullish, indicating a resumption of the alpha-generating trend.
- Apple and customer concentration is a key risk monitorable, although the acquisition of VMWare is likely to reduce the extent of this risk.
Thesis
I am bullish on Broadcom (NASDAQ:AVGO):
- Growth is healthy, both organically and inorganically
- Mix shift makes a case for margin expansion and transition to negative working capital
- Valuation is attractive vs peers
- Technicals point bullish
- Apple and customer concentration is a key risk monitorable
Growth is healthy, both organically and inorganically
Broadcom made a major acquisition last year by buying cloud computing company VMWare last year for $69 billion. In these kinds of scenarios, to assess operational health of the company, I believe it is important to look at growth both organically and inorganically.
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