Earnings Outlook: Broadcom earnings: Qualcomm? Who cares?

With all the drama surrounding Broadcom Ltd.’s blocked hostile takeover of Qualcomm Inc., the Singapore-but-soon-to-be-U.S.-based chip maker is expected to show on Thursday that it doesn’t really need Qualcomm.

For months, Broadcom AVGO, -0.62%  and Qualcomm QCOM, -4.95%  were locked in a squabble about Broadcom’s takeover offer, which would have been the largest tech merger in history. The drama climaxed when Qualcomm’s March shareholder meeting was delayed by the Committee on Foreign Investment in the U.S. last week as Broadcom appeared to gaining favor with shareholders, followed by President Donald Trump’s executive order blocking the deal on Monday.

Don’t miss: How Broadcom vs. Qualcomm went from hostile takeover bid to a Trump blockade

Before Trump’s order that blocked the deal, Broadcom had said it would move its headquarters from Singapore to the U.S. a month sooner than expected, by April 3, and pledged $1.5 billion to train U.S. engineers in 5G technology. When the company reports fiscal first-quarter earnings Thursday after the bell, expect to hear updates on those plans in the wake of Trump’s prohibition against the deal, as well as any new direction Broadcom will take with Qualcomm seemingly off the table.

Don’t count on any doom and gloom, however: Analysts appear unruffled by what appears to be the implosion of the bid for Qualcomm, and suggest that Broadcom’s growth can continue to grow without merging with its rival.

What to expect

Earnings: Of the 25 analysts surveyed by FactSet, Broadcom on average is expected to post adjusted earnings of $5.04 a share, up from the $4.95 a share expected at the beginning of the quarter. Broadcom forecast about $5.10 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $5.07 a share.

Revenue: Wall Street expects revenue of $5.32 billion, according to an average of 24 analysts polled by FactSet. That’s up from $5.3 billion forecast at the beginning of the quarter. Broadcom predicted revenue of $5.3 billion to $5.35 billion. Estimize expects revenue of $5.34 billion.

Analysts expect wireless communications sales to rise 60% from a year ago to $1.88 billion, wired infrastructure sales to grow by 4.2% to $2.17 billion, industrial and automotive sales to increase by 42% to $255.3 million, and enterprise storage sales to rise 27% to $894.7 million.

Stock movement: Shares have undergone a fair amount of volatility amid the Qualcomm fight, and are up less than 2% overall in 2018 and about 15% in the past 12 months. In comparison, the PHLX Semiconductor Index SOX, -1.55%  is up 13.6% for the year and 42% in the past 12 months, and the S&P 500 index SPX, -0.64%  is up 3.4% for the year and nearly 17% in the past 12 months.

What analysts are saying

Mizuho analyst Vijay Rakesh, who has a buy rating and a $310 price target on Broadcom, said he remains positive on Broadcom and confident that it can “go it alone” without Qualcomm. He noted:

We believe while the QCOM deal could have added significant [earnings per share] and [free cash flow] and upside for shareholders, as noted also by strong shareholder approval for many of the Broadcom-nominated directors, the deal is now almost effectively dead. While BRCM is re-domiciling to the U.S. by Apr-May 6, and CEO Hock could still pull a rabbit out of a hat, we believe with the CFIUS and Presidential order it could be a challenge.

Cowen analyst Karl Ackerman, who has an outperform rating and a $315 price target, said Broadcom now has two options: “reposition M&A efforts toward smaller, less needle-moving deals,” or “meaningfully increase shareholder return.”

“Either way, we think Broadcom’s stock should work from here,” Ackerman said.

See also: Trump’s Broadcom block is just a ‘prelude’ to more China takedowns

RBC analyst Amit Daryanani, who has a buy rating and a $325 price target, expects results to be slightly ahead of what the company predicted in January and a forecast ahead of the Street consensus. Daryanani, who still expects double-digit growth from Broadcom, noted:

Jan-qtr revenues upside should come from stable wireless, modest upside from wired and strength in Enterprise segment (HDD & HBA). From an EPS perspective, upside should be driven by favorable mix (Wired and Enterprise), BRCD synergies and [operating expense] controls.

Oppenheimer analyst Rick Schafer, who has an outperform rating and a price target of $315, said Broadcom’s forecast showed diversified strength given a recent weakness of sales to Apple Inc. AAPL, -0.96%  for iPhones. Schafer noted:

Details were limited in the January release; however, management said strong datacenter demand and seasonal broadband strength are more than offsetting a greater than-seasonal decline in wireless (we attribute to Apple).

Of the 27 analysts who cover Broadcom, 26 have buy or overweight ratings and one has a hold rating, with an average price target of $320.96, or 23% higher than Tuesday’s close.

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