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Broadcom

Nasdaq:AVGO
Snowflake Description

High growth potential with mediocre balance sheet.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
AVGO
Nasdaq
$112B
Imp Market Cap
  1. Home
  2. US
  3. Semiconductors
2017/12/16
Company description

Broadcom Limited designs, develops, and supplies a range of semiconductor devices 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 analysis.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
2%
Share price is $265.73 vs Future cash flow value of $270.56
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, but not at a moderate 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 Avocados) 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?
  • Broadcom is overvalued based on earnings compared to the Global Semiconductors and Semiconductor Equipment industry average.
  • Broadcom is overvalued based on earnings compared to the US market.
Price based on expected Growth
Does Broadcom's expected growth come at a high price?
  • Broadcom is poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Broadcom's assets?
  • Broadcom is overvalued based on assets compared to the Global Semiconductors and Semiconductor Equipment 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 Semiconductor 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 Semiconductor industry average (and greater than 0)? (1 check)
  5. Broadcom has a total score of 0/6, 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 (59.61%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (2 Stage 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:
$30,701

Terminal Value

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

Terminal Value = $10,924 × (1 + 2.47%) ÷ (10.43% – 2.47%)

Terminal value based on the Perpetuity Method where growth (g) = 2.47%:
$140,692

Present value of terminal value:
$85,686

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
$116,387 = $30,701 + $85,686

Value = Total value / Shares Outstanding ($116,387 / 430)

Discount to Share Price

Value per share:
$270.56

Current discount (share price of $265.73): 1.79%



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 = 10.43% = 2.47% + (1.057 * 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). Note the market value of equity is used not the book value ($111,560,310,362).

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

1.057 = 0.935 (1 + (1- 17%) (15.73%))

Levered Beta used in calculation = 1.057



Assumptions
  1. The risk free rate of 2.47% is from the 10 year government bond rate in USD.
  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 (7.53%) (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 25 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!
Annual Growth Rate
40.5%
Expected annual growth in earnings.
Earnings growth vs Low Risk Savings
Is Broadcom expected to grow at an attractive rate?
  • Broadcom's earnings growth is expected to exceed the low risk savings rate of 4.5%.
Growth vs Market Checks
  • Broadcom's earnings growth is expected to exceed the US market average.
  • Broadcom's revenue growth is expected to exceed the US market average.
Annual Growth Rates Comparison
Analysts growth expectations
Super high growth metrics
High Growth Checks
  • Broadcom's earnings are expected to grow significantly at over 20% yearly.
  • Broadcom's revenue is expected to grow by 10.2% yearly, however this is not considered high growth (20% yearly).
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 occurred. We also show the highest and lowest estimates looking forward to see if there is a wide range.
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
  • Performance (ROE) is expected to be above the current Global Semiconductors and Semiconductor Equipment 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 annual earnings growth rate expected to beat the low risk savings rate, plus a premium to keep pace with inflation?
  2. Is the annual earnings growth rate expected to beat the average growth rate in earnings of the XX market? (1 check)
  3. Is the annual revenue growth rate expected to beat the average growth rate in revenue of the XX market? (1 check)
  4. Is the annual earnings growth rate expected to be above 20%? (1 check)
  5. Is the annual revenue growth rate expected to be above 20%? (1 check)
  6. 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 1: We use GAAP Net Income Excluding Exceptional Items for our Earnings 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 (Semiconductor).
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's year on year growth rate is negative over the past 5 years, however the most recent earnings are above average.
  • Broadcom has been loss making last year but is now profitable.
  • Broadcom has become profitable in the last year making it difficult to compare the industry average.
Earnings and Revenue 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.
  • Poor return on shareholders funds (ROE < 20%) last year.
  • Broadcom performed worse than the Global Semiconductors and Semiconductor Equipment industry average based on Return on Assets (ROA) last year.
  • Performance based on Return on Capital Employed (ROCE) has been diminishing over 3 years.
X
Past performance checks
We assess Broadcom's performance over the past 5 years by checking for:
  1. Has earnings increased in past 5 years? (1 check)
  2. Has the earnings growth in the last year exceeded that of the Semiconductor industry? (1 check)
  3. Is the recent earnings growth over the last year 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 0/6, see the detailed checks below.

Note: We use GAAP Net Income excluding extraordinary items 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, assets are 0.9x debt.
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.
  • Broadcom's level of debt (75.3% of total debt) compared to net worth is high (greater than 40%).
  • The level of debt compared to net worth has increased over the past 5 years (0.1% vs 75.3% today).
  • Total debt is well covered by annual operating cash flow (37.3%, greater than 20% of total debt).
  • Interest on debt is well covered by earnings (EBIT is 6.1x coverage).
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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 company pays interest at all)? (1 check)
  7. Broadcom has a total score of 3/6, 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
2.63%
Current annual income from Broadcom dividends. Estimated to be 2.86% next year.
If you bought $2,000 of Broadcom shares you are expected to receive $53 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 (2.25%).
  • Paying below markets top dividend payers (3.18%).
Upcoming dividend payment

Purchase Broadcom on or before the 'Buy Limit' to receive their next dividend payment.

Dividends are usually paid every 3 or 6 months, you can time your share purchase to take advantage of upcoming dividend payments.
Dividend payment calendar
Annualized Historical and Future Dividends
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 7 years.
Current Payout to shareholders
What portion of Broadcom's earnings are paid to the shareholders as a dividend.
  • Dividends paid are not well covered by net profit (0.9x coverage).
Future Payout to shareholders
  • Dividends after 3 years are expected to be well covered by net profit (2.1x coverage).
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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
AGE 65
TENURE AS CEO 11.8 years
CEO Bio

Mr. Hock E. Tan has been Chief Executive Officer and President at Brocade Communications Systems, Inc. since November 17, 2017. Mr. Tan has been the Chief Executive Officer, President and an Executive Director of Broadcom Limited since March 2006. Mr. Tan has been Chief Executive Officer and President at Avago Technologies Finance Pte. Ltd. since March 2006. Mr. Tan has been the Chief Executive Officer at Broadcom Corporation since February 1, 2016. He has been the Chief Executive Officer and President of Emulex Corporation since May 5, 2015. Mr. Tan has been the Chief Executive Officer and President of PLX Technology Inc. since August 12, 2014. He serves as the President of Micro Networks Corporation. He served as the President, Chairman of the Board and Chief Executive Officer of Integrated Device Technology, Inc. from September 16, 2005 to January 23, 2008. He is a semiconductor industry veteran with more than 25 years of extensive global operations and management experience. 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 and was its founder. 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 of Integrated Circuit Systems, Inc. from September 16, 2005 to January 23, 2008. He has been Director at Brocade Communications Systems, Inc. since November 17, 2017. He has been a Director of Broadcom Corporation 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 served as Integrated Circuit Systems Inc., since May 1999. He holds an MBA from Harvard Business School and an MS and BS in Mechanical Engineering from Massachusetts Institute of Technology.

CEO Compensation
  • Hock's compensation has increased in line with Broadcom has become profitable.
  • Hock's compensation appears reasonable.
Management Team Tenure

Average tenure and age of the Broadcom management team in years:

4.1
Average Tenure
53.6
Average Age
  • The tenure for the Broadcom management team is about average.
Management Team

Hock Tan

TITLE
CEO, President & Executive Director
COMPENSATION
$25M
AGE
65
TENURE
11.8 yrs

Tom Krause

TITLE
CFO & VP
COMPENSATION
$3M
AGE
39
TENURE
1.2 yrs

Henry Samueli

TITLE
CTO & Director
COMPENSATION
$3M
AGE
62
TENURE
1.8 yrs

Charlie Kawwas

TITLE
Senior VP & Chief Sales Officer
COMPENSATION
$5M
AGE
46
TENURE
2.5 yrs

Bryan Ingram

TITLE
Senior VP & GM of Wireless Semiconductor Division
COMPENSATION
$4M
AGE
52
TENURE
2.1 yrs

Boon Ooi

TITLE
Senior Vice President of Global Operations
COMPENSATION
$5M
AGE
63
TENURE
8.9 yrs

Kirsten Spears

TITLE
VP, Corporate Controller & Principal Accounting Officer
AGE
53
TENURE
1.8 yrs

Andy Nallappan

TITLE
VP of Global Information Technology & Chief Information Officer
TENURE
5.9 yrs

Mark Brazeal

TITLE
Chief Legal Officer
AGE
49
TENURE
0.8 yrs

Debbie Streeter

TITLE
Vice President of Human Resources
Board of Directors Tenure

Average tenure and age of the Broadcom board of directors in years:

5.2
Average Tenure
66
Average Age
  • The tenure for the Broadcom board of directors is about average.
Board of Directors

Jim Diller

TITLE
Chairman of the Board
COMPENSATION
$652K
AGE
81
TENURE
7.8 yrs

Hock Tan

TITLE
CEO, President & Executive Director
COMPENSATION
$25M
AGE
65
TENURE
11.8 yrs

Henry Samueli

TITLE
CTO & Director
COMPENSATION
$3M
AGE
62
TENURE
1.8 yrs

Don MacLeod

TITLE
Independent Director
COMPENSATION
$308K
AGE
68
TENURE
10.1 yrs

Eddy Hartenstein

TITLE
Independent Director
COMPENSATION
$309K
AGE
66
TENURE
1.8 yrs

Peter Marks

TITLE
Independent Director
COMPENSATION
$84K
AGE
64
TENURE
4 yrs

Lewis Eggebrecht

TITLE
Independent Director
COMPENSATION
$83K
AGE
73
TENURE
3.7 yrs

Check Kian Low

TITLE
Independent Director
AGE
58
TENURE
1 yrs

Gayla Delly

TITLE
Independent Director
AGE
57
Recent Insider Trading
  • Broadcom insiders have only sold shares 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 0/6, 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

Company Info

Map
Description

Broadcom Limited designs, develops, and supplies a range of semiconductor devices worldwide. It focuses on 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 products; 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 and base stations, 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
Implied Market Cap: $111,560,310,362
Market Cap: $105,805,365,666
Shares outstanding: 430,170,087
Website: http://www.broadcom.com
Address: Broadcom Limited
1 Yishun Avenue 7,
Singapore,
768923,
Singapore
Listings
Exchange Symbol Ticker Symbol Security Exchange Country Currency Listed on
NasdaqGS AVGO New Common Stock Nasdaq Global Select US USD 06. Aug 2009
DB BRX New Common Stock Deutsche Boerse AG DE EUR 06. Aug 2009
WBAG AVGO New Common Stock Wiener Boerse AG AT EUR 06. Aug 2009
BMV AVGO N New Common Stock Bolsa Mexicana de Valores MX MXN 06. Aug 2009
Number of employees
Current staff
Staff numbers
15,700
Broadcom employees.
Industry
Industry: Semiconductors
Sector: Semiconductors