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Broadcom

Nasdaq:AVGO
Snowflake Description

High growth potential with imperfect balance sheet.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
AVGO
Nasdaq
$87B
Market Cap
Semiconductors
Company description

Broadcom Limited designs, develops, and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. More info.


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3 Month History
AVGO
Industry
5yr Volatility vs Market

Value

 Is Broadcom undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Broadcom to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

Current Discount
Amount off the current price Broadcom is available for.
Intrinsic value
28%
Share price is $221.24 vs Future cash flow value of $309.07
Current Discount Checks
For Broadcom to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
  • Broadcom's share price is below the future cash flow value, and at a significant discount (> 20%).
  • Broadcom's share price is below the future cash flow value, but not at a substantial discount (< 40%).
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Broadcom's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Broadcom's earnings available for a low price, and how does this compare to other companies in the same industry?
  • No earnings or negative earnings.
  • No earnings or negative earnings.
Price based on expected Growth
Does Broadcom's expected growth come at a high price?
  • No earnings or negative earnings.
Price based on value of assets
What value do investors place on Broadcom's assets?
  • Overvalued based on assets compared to the Semiconductors industry average.
X
Value checks
We assess Broadcom's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Semiconductors industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Semiconductors industry average (and greater than 0)? (1 check)
  5. Broadcom has a total score of 1/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (184.83%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for Broadcom is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$28,426

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $9,833 × (1 + 2.5%) ÷ (9.35% – 2.5%)

Terminal value based on the Perpetuity Method where growth (g) = 2.5%:
$146,388

Present value of terminal value:
$93,618

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding ($122,043 / 395)

Value per share:
$309.07

Current discount (share price of $221.24): 28%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 9.35% = 2.47% + (0.914 * 7.53%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.914 = 0.824 (1 + (1- 30%) (15.52%))

Levered Beta used in calculation = 0.914



Assumptions
  1. The risk free rate of 2.47% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Broadcom expected to perform in the next 1 to 3 years based on estimates from 27 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    Earnings are expected to become positive over 3 years.
    Future Earnings growth analysis
    Is Broadcom expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Broadcom's annual earnings growth expected to exceed 3.6% over the next 3 years?

    • Expected to become positive in 1 year.
    • Expected to become positive over 3 years.
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow
    • Broadcom is expected to become profitable in 2 years.
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Broadcom is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

    Improvement & Relative to industry
    • Expected to be above the Semiconductors industry average.
    • An improvement in Broadcom's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Broadcom's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Broadcom has a total score of 5/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Broadcom performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Broadcom's growth in the last year to its industry (Semiconductors).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Broadcom does not currently make a profit.
    Profit History
    Broadcom's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Negative return on shareholders funds (ROE) last year.
    • Broadcom performed worse than the Semiconductors industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
    X
    Past performance checks
    We assess Broadcom's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Semiconductors industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Broadcom has a total score of 1/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Broadcom's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up Broadcom's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • Broadcom is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
    • Broadcom's long term commitments exceed its cash and other short term assets.
    Balance sheet
    This treemap shows a more detailed breakdown of Broadcom's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • Low level of unsold assets
    • Total debt is not covered by total short term assets.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • The level of debt (62%) compared to net worth is high (greater 40%).
    • The level of debt compared to net worth has increased over the past 5 years (0% vs 62% today).
    • Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
    • Company is making a loss, therefore interest on debt is not well covered by earnings.
    X
    Financial health checks
    We assess Broadcom's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. Broadcom has a total score of 2/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is Broadcom's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    1.9%
    Current annual income from Broadcom dividends. Estimated to be 2.39% next year.
    If you bought $2,000 of Broadcom shares you are expected to receive $38 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying above low risk savings rate. (1.75%)
    • Paying below the markets top dividend payers. (3.18%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Whilst dividend payments have been stable, Broadcom has been paying a dividend for less than 10 years.
    • Dividend payments have increased, but Broadcom only paid a dividend in the past 6 years.
    Current Payout to shareholders
    What portion of Broadcom's earnings are paid to the shareholders as a dividend.
    • The company is paying a dividend however it is incurring a loss.
    Future Payout to shareholders
    • Dividends after 3 years are expected to be well covered by net profit (2.6x coverage).
    X
    Income/ dividend checks
    We assess Broadcom's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can Broadcom afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. Broadcom has a total score of 2/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of Broadcom's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    Hock Tan, image provided by Google.
    Hock Tan
    COMPENSATION$24,692,047
    AGE65
    CEO Bio

    Mr. Hock E. Tan has been the Chief Executive Officer at Broadcom Corp. since February 1, 2016. Mr. Tan has been the Chief Executive Officer and President of Broadcom Limited (also known as Avago Technologies Limited) since March 2006. He serves as Chief Executive Officer and President at Avago Technologies Finance Pte. Ltd. He served as the Chief Executive Officer and President of Emulex Corporation since May 5, 2015. Mr. Tan served as the Chief Executive Officer and President of PLX Technology Inc. since August 12, 2014. He serves as the President of Micro Networks Corporation. He is a semiconductor industry veteran with more than 25 years of extensive global operations and management experience. He served as the President and the Chief Executive Officer of Integrated Device Technology, Inc. from September 16, 2005 to January 23, 2008. He served as the Chief Executive Officer and President after the recapitalization of Integrated Circuit Systems, Inc. from May 11, 1999 to September 2005. He joined Integrated Circuit Systems, Inc. in August 1994 and served as its Senior Vice President and Chief Financial Officer since February 1995. Since April 1996, he served as the Chief Operating Officer of Integrated Circuit Systems, Inc. He served as Vice President of Finance of Commodore International, Ltd. from 1992 to 1994. He served as the Managing Director of Pacven Investment, Ltd. from 1988 to 1992, which he founded. He served as the Managing Director of Hume Industries (M) Ltd. from 1983 to 1988. He held senior financial positions with PepsiCo, Inc. and General Motors Corporation. He served as the Chairman and Director of Integrated Circuit Systems, Inc. from September 16, 2005 to January 23, 2008. He has been an Executive Director at Broadcom Limited since March 2006. He has been a Director of Integrated Circuit Systems Inc., since May 1999 and Broadcom Corp. since February 1, 2016. He serves as a Director of Avago Technologies U.S. Inc. He has been a Member of the Board of Directors of Avago Technologies Finance Pte. Ltd. since March 2006. He holds an MBA from Harvard Business School and an MS and BS in Mechanical Engineering from Massachusetts Institute of Technology.

    CEO Compensation
    • CEO's compensation has increased whilst company is loss making.
    • CEO's compensation is higher than average for a company of this size and profit level.
    Management Team Tenure

    Average tenure of the Broadcom management team:

    Management tenure
    5.3 years
    • The average tenure for the Broadcom management team is over 5 years, this suggests they are a seasoned and experienced team.
    Management Team

    Hock Tan

    TITLE
    Chief Executive Officer
    COMPENSATION
    $24,692,047
    AGE
    65

    Tom Krause

    TITLE
    Chief Financial Officer and Vice President
    COMPENSATION
    $3,452,811
    AGE
    39

    Henry Samueli

    TITLE
    Chief Technical Officer and Director
    COMPENSATION
    $3,031,872
    AGE
    62

    Charlie Kawwas

    TITLE
    Chief Sales Officer and Senior Vice President
    COMPENSATION
    $5,322,580
    AGE
    46

    Bryan Ingram

    TITLE
    Senior Vice President and General Manager of Wireless Semiconductor Division
    COMPENSATION
    $4,100,609
    AGE
    52

    Boon Ooi

    TITLE
    Senior Vice President of Global Operations
    COMPENSATION
    $4,932,490
    AGE
    63
    Board of Directors Tenure

    Average tenure of the Broadcom board of directors:

    Board tenure
    7.1 years
    • The tenure for the Broadcom board of directors is about average.
    Board of Directors

    Jim Diller

    TITLE
    Chairman of the Board
    COMPENSATION
    $651,559
    AGE
    81

    Hock Tan

    TITLE
    Chief Executive Officer
    COMPENSATION
    $24,692,047
    AGE
    65

    Henry Samueli

    TITLE
    Chief Technical Officer and Director
    COMPENSATION
    $3,031,872
    AGE
    62

    Don MacLeod

    TITLE
    Independent Director
    COMPENSATION
    $308,259
    AGE
    68

    Eddy Hartenstein

    TITLE
    Independent Director
    COMPENSATION
    $309,441
    AGE
    66

    Ken Hao

    TITLE
    Independent Director
    COMPENSATION
    $375,259
    AGE
    48
    Recent Insider Trading
    • Broadcom insiders have sold more shares than they have bought in the past 3 months.
    Who owns this company?
    X
    Management checks
    We assess Broadcom's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. Broadcom has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Articles
    Announcements

    Company Info

    Description

    Broadcom Limited designs, develops, and supplies a range of complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company operates through four segments: Wired Infrastructure, Wireless Communications, Enterprise Storage, and Industrial & Other. The Wired Infrastructure segment provides set-top box system-on-chips (SoCs); cable, digital subscriber line, and passive optical networking central office/consumer premise equipment SoCs; Ethernet switching and routing application specific standard product; embedded processors and controllers; serializer/deserializer application specific integrated circuits; optical and copper physical layers; and fiber optic laser and receiver components. The Wireless Communications segment offers RF front end modules, filters, and power amplifiers; Wi-Fi, Bluetooth, and global positioning system/global navigation satellite system SoCs; and custom touch controllers. The Enterprise Storage segment provides serial attached small computer system interface, and redundant array of independent disks controllers and adapters; peripheral component interconnect express switches; fiber channel host bus adapters; read channel based SoCs; and preamplifiers. The Industrial & Other segment optocouplers; industrial fiber optics motion control encoders and subsystems; and light emitting diodes. Its products are used in various applications, including enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. The company was formerly known as Avago Technologies Limited and changed its name to Broadcom Limited in February 2016. Broadcom Limited was founded in 2005 and is headquartered in Singapore.

    Details
    Name:Broadcom Limited
    Ticker:AVGO
    Exchange:NasdaqGS
    Founded:2005
    Market Cap:$87,361 million
    Website:http://www.broadcom.com
    Listings
    Map

    1 Yishun Avenue 7, Singapore, 768923, Singapore

    Number of employees
    Street

    Current staff
    Staff numbers
    15,700
    Broadcom employees.
    Industry
    Industry:Semiconductors
    Sector:Semiconductors and Semiconductor Equipment