Avago Soars as Earnings Top Estimates on Demand for IPhones

  • At least five analysts raise price targets on wireless outlook
  • Need for fast data spurs demand for Avago's electronic filters

Avago Technologies Ltd., which is leading the chip industry’s consolidation wave, surged the most in more than nine months after reporting fourth-quarter profit that topped estimates on demand for mobile-phone components.

Profit, excluding certain items, was $2.51 a share in the three months ended Nov. 1, up from $1.99 a share a year earlier, the company said in a statement Wednesday. That compared with an average analyst estimate of $2.38 a share, according to data compiled by Bloomberg. Revenue rose 16 percent to $1.84 billion.

The shares jumped 9.5 percent, the most since Feb. 26, to $144.78 at the close in New York. That brought the gains this year to 44 percent, compared with a 5.8 percent increase in the Standard & Poor’s 500 Information Technology Sector Index.

Avago, which is acquiring rival Broadcom Corp. for $37 billion in the biggest chip merger, is picking up semiconductor companies in a record year for industry deals, as chipmakers seek to build scale and cut costs. The company acquired LSI Corp in 2014 and Emulex Corp. earlier this year.

Avago, which counts Apple Inc. as one of its largest customers, cited strong growth in its wireless-chip division.

“We are buyers as we look forward to the close of the BRCM merger and 20 percent increase in content on the iPhone 7,” according to a note from Pacific Crest Securities analysts Rob Owens and Ben McFadden.

At least five analysts raised their price targets on Avago, including Suji De Silva at Topeka Capital Markets who now sees $153, up from $130.

“Our EPS forecast improves based on a bullish longer-term wireless outlook coupled with a lower than expected expense run-rate,” De Silva wrote. He has a hold rating on the stock.

As phones use more radio frequencies to send and receive data at faster speeds, they’re using more of the electronic filters that Avago makes, stoking demand for its products, according to Drexel Hamilton analyst Cody Acree. The earnings report spurred investors to buy, following a period when some thought Apple would cut parts orders and damp the company’s earnings outlook, he said.

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