Broadcom Inc.’s (NASDAQ: AVGO), stock dropped 7% after its quarterly earnings report.
Investors were concerned that despite exceeding Wall Street expectations, there was a slight miscalculation in the revenue guidance for the Q4 quarter.
Jim Cramer, a market expert, says that this drop in stock prices is a great opportunity for investors who want to invest at a discounted price into high-quality companies.
Broadcom’s earnings were strong, but their Q4 forecast revenue of $14 billion fell short of analysts’ expectations of $14.1 billion.
Cramer is still confident about the stock and highlights Broadcom’s strong position in semiconductor and software markets.
Broadcom now offers P/E Multiples with a more Attractive Price
Cramer has praised Broadcom for its proven M&A strategies, especially the $69 billion purchase of VMware that exceeded expectations.
The CEO believes that this purchase, combined with Broadcom’s expanding artificial intelligence (AI), will allow the company to continue its growth.
Broadcom expects to earn over $3.5 Billion in AI revenue for the Q4 of 2018, a 10% increase from last quarter.
Cramer believes Broadcom, a leader in AI technology, offers a better price to earnings (P/E), compared with competitors such as Nvidia.
Broadcom Stock could reach $190
Broadcom’s current dividend yield of 1.37% offers a steady source of income.
It is also focusing on the reduction of debt from VMware’s acquisition.
Broadcom will likely initiate an extensive stock-buyback program once debt levels have normalized, thereby boosting shareholder returns.
Broadcom’s legacy business may be under stress, but CEO Hock T. Tan is confident that it will soon begin to rebound. The chief executive stated:
My sense is that we will get back to where we were in the past. It’s not possible.
Cramer believes that the stock will reach $190 as AI revenue continues to grow and non-AI segment stabilizes. This would be a 35% increase from its current level.
Broadcom, with its continued AI expansion and successful VMware integration could see its market capitalization reach $1 trillion.
Wall Street analysts also share the optimism with a median price target of $193.
The post Jim Cramer’s bullish AVGO stock view on Broadcom may change as new information unfolds.
