Photo credit: Floirian Knodt, Flickr

Broadcom Inc's AVGO slight miss on revenue, a semiconductor demand trough and trade difficulties with China had investors selling the stock off Friday, but sell-side analysts remained bullish, saying the trough has bottomed and the company can weather the international storm.

While Broadcom’s revenue was slightly below Street estimates, EPS came in slightly ahead. Management maintained its full fiscal year outlook on sales and operating margin while saying chip demand won’t go any lower – though it’s not clear when the rebound will come.

The Analysts

Bank of America analyst Vivek Arya reiterated a Buy rating with a $345 price target.

Mizuho’s Vijay Rakesh raised the price target from $330 to $340 while keeping a Buy rating on the stock.

UBS analyst Timothy Arcuri’s Buy rating and $310 target price were unchanged.

SunTrust Robinson Humphrey’s William Stein raised the price target from $307 to $322 and maintained a Buy rating.

Morgan Stanley’s Craig Hettenbach kept an Equal-weight rating on Broadcom but raising the price target from $250 to $265.

The Theses

Analysts widely acknowledged the company’s stated concerns about the trade conflict, but also say they believe the company is right in projecting it’s near the bottom of a chip demand trough – although not willing to say yet it’s on the rise again. They also said there’s plenty reason to expect continued cash flow growth and they like the stock’s dividend story.

Arya said there were “numerous positives that can rejuvenate the stock,” including good free cash flow, and hope for stronger demand due to movement to the cloud and the coming adoption of more AI technology and 5G phones.

Arya said in a note there’s “longer-term potential for EBIT margins to move to 60% as the business mix shifts to more software” and away from just chips.

CA Purchase

Rakesh also found good news in Broadcom’s diversification with its recent purchase of mainframe software solutions business CA Technologies, which has turned out better than expected.

“The CA acquisition is tracking ahead of expectations, with CA core customers up ... overall 10% year-over-year,” Rakesh wrote in a note. “AVGO continues to see stable business despite continued U.S.-China trade conflict, although management noted that semiconductor visibility remains limited moving into 2020E.”

Dividend Story On Track

Stein and Arcuri were all about the dividend in their notes to investors.

Stein said the bottoming of semiconductor sales, the strength from the CA purchase suggest the dividend is “spring-loaded to deliver a double-digit growth in FY20 and, in FY21 as well.”

Or, as Arcuri summed up the situation: “Amid a lot of moving parts, not a whole lot has changed and the dividend story remains on track.”

M&A Strategy Discomfort

Hettenbach was a bit more bearish, saying investors aren't fully on board with the purchase of CA and another pending acquisition of Symantec Corporation SYMC 0.75%.

“We expect the stock’s valuation multiple to remain depressed near term until investors get more comfortable with the company's M&A strategy in software,” Hettenbach wrote. “From here, we see EPS revisions as the primary driver of stock price.”

Price Action

Broadcom's stock was down 2.5% at publication time to $293 per share.