Semiconductor giant Broadcom Inc. (AVGO) has lost 12.9% over the past year and 31.6% year-to-date to currently trade at a reasonable price considering its solid prospects.

The company’s ValueOps solution, Rally Software®, recently achieved Federal Risk and Authorization Management Program (FedRAMP) authorization.

Serge Lucio, vice president and general manager Agile Operations Division, AVGO, said, “FedRAMP creates a partnership between the federal government and industry. We are particularly proud of this authorization as it builds on our long-standing relationship with our government customers.”

Also, on October 11, 2022, AVGO announced the availability of the industry’s first open end-to-end networking solution optimized for Remote Direct Memory Access over Converged Ethernet. This solution is co-developed by AVGO and Arista and is a one-of-a-kind contribution to the seamless deployment of RoCE.

AVGO’s steady earnings stream has allowed it to reward its shareholders over the past decade attractively. Its dividend payments have grown at CAGRs of 32.1% and 15.7% over the past five years and three years, respectively. Its current dividend yields 3.60%, while its four-year average yield is 3.23%.

While the stock has declined significantly amid the broader market sell-off, Wall Street analysts expect it to hit $668.00 in the next 12 months, indicating a potential upside of 45.7%.

Here is what could shape AVGO’s performance in the near term:

Solid Financials

AVGO’s net revenues came in at $8.46 billion for the third quarter that ended July 31, 2022, up 24.9% year-over-year. Moreover, its net income came in at $3 billion, up 66.4% year-over-year. Also, its EPS came in at $7.15, up 70.2% year-over-year. In addition, its adjusted EBITDA came in at $5.38 billion, up 30.4% year-over-year.

Attractive Valuation

AVGO’s forward EV/EBITDA of 10.38x is 14.5% lower than the industry average of 12.15x. Its forward P/E of 17.35x is 18.1% lower than the industry average of 21.18x. Also, its forward Price/Cash Flow of 11.49x is 28.4% lower than the industry average of 16.04x.

Robust Profitability

AVGO’s trailing-12-month gross profit margin of 75.13% is 49.3% higher than the industrial average of 50.33%. Its trailing-12-month EBITDA margin of 57.33% is 372.5% higher than the industry average of 12.13%, while its trailing-12-month net income margin of 31.96% is 717.4% higher than the industrial average of 3.91%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 43.46%, 12.87%, and 14.20%, compared with the industry averages of 6.71%, 3.73%, and 2.47%, respectively.

POWR Ratings Reflect Promising Outlook

AVGO has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has an A grade for Quality, consistent with higher-than-industry profitability margins. It has a B grade for Growth, in sync with its solid financials in the latest reported quarter.

In the 93-stock Semiconductor & Wireless Chip industry, AVGO is ranked #6. The industry is rated B.

Click here for the additional POWR Ratings for AVGO (Value, Momentum, Stability, and Sentiment).

View all the top stocks in the Semiconductor & Wireless Chip industry here.

Bottom Line

AVGO delivered a strong performance in the last reported quarter. Moreover, its revenue and EPS are expected to increase 20.9% and 33.7% year-over-year to $33.18 billion and $37.44, respectively, in 2022. Given the stock’s solid fundamentals, it looks poised to deliver solid returns in the coming months.

How Does Broadcom Inc. (AVGO) Stack Up Against its Peers?

While AVGO has an overall POWR Rating of B, one might consider looking at its industry peers, STMicroelectronics N.V. (STM), Renesas Electronics Corporation (RNECF), and Xperi Inc. (XPER), which have an overall A (Strong Buy) rating.

AVGO shares were trading at $469.60 per share on Friday morning, up $14.20 (+3.12%). Year-to-date, AVGO has declined -27.76%, versus a -17.94% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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