Broadcom Corporation (BRCM) is poised to fight through negative sentiment around the stock with its recent acquisition of Renesas Electronics Corporation’s (TYO:6723) modem I.P. and team, setting up BRCM as a value story with the stock expected move back into the low 30s in the next couple of quarters, says Patrick Wang, Managing Director at Evercore.
“[BRCM] has had a bit of reset over the past couple of months here, but Broadcom in the mid 20s is a tremendous value idea. It trades at nine times earnings, and there is a lot of negative sentiment on the stock. If you take a look at it, Broadcom has not traded at this valuation level for many, many years. The combo chip story is under pressure with concerns of share loss; there is concern about LTE being a nonstarter, which is the cellular technology we are all using on all the new iPhones and Samsung Galaxys,” Wang said.
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BRCM‘s recent acquisition of the Renesas modem I.P. and team for $164 million is bringing Broadcom back into the game, Wang says, and over the next couple of quarters he expects to see the stock move into the low 30s.
“When you look at risk to reward, I see minimal downside in the mid 20s, and think it is more of a show-me value story in the sense that investors have overestimated losses and have underestimated gains. Over the next couple of quarters, I think you are going to see Broadcom move back to the low 30s, which at this point is a very good return,” Wang said.
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