Broadcom shares got a lift on Thursday from Piper Sandler chip analyst Harsh Kumar, who reiterated his Overweight rating on the stock while raising his target price by 11% to $500.
Kumar wrote in a research note that he recently met with Broadcom (ticker: AVGO) CEO Hock Tan and CFO Kirsten Spears, and came away “feeling very confident in the company’s long-term strategic direction.”
The Piper analyst argued that “the near-term set-up” for the semiconductor and software company’s shares is favorable, given strength in chip demand from both cloud and 5G wireless-handset customers.
“We also see the software segment as an integral part of the company’s strategy,” he wrote, “and we expect any future acquisitions to be in this space.” Kumar said that Broadcom is cheap relative to its rivals, while offering better financial metrics, and remains his top large-cap stock pick for 2021.
Kumar noted that the company on its most recent earnings call provided increased visibility into different segments of its business. He said the company’s goal was to dispel concerns about profitability in its software business, and to highlight the success of its chip segment during the pandemic.
“In general, we believe Broadcom has had better success than others in 2020,” he wrote. “Overall, we feel management’s decision to provide additional metrics was the right move, as it should give investors additional insight into each business.”
Broadcom has built its software business largely through acquisition, buying mainframe-software specialist CA Technologies in 2018 and security-software company Symantec’s enterprise business in 2019. Kumar pointed out that Broadcom considers software to be an integral part of its long-term strategy.
“Management has been able to show growth in old software businesses while driving strong profitability,” he wrote. “Following our conversation, we walked away feeling the software business is here to stay, with the potential for additional acquisitions down the line. Management made it very clear the focus of future acquisitions would be software, as the company is very comfortable with its positioning in the chip space right now.”
Broadcom shares were up 3.6%, to $440.90, on Thursday afternoon, while the S&P 500 was up 1.4%.
Write to Eric J. Savitz at [email protected]