It’s been an explosive year for Broadcom Inc. (NASDAQ:AVGO). After imploding in the first half of the year, the stock has bounced, going on to more than double in value from 2020 lows. The explosive run stems from investors taking note of the company’s track record in topping earnings estimates.
Solid Growth
At a time when most companies are struggling to meet the lower end of suppressed estimates, Broadcom outperformed the overall industry. In the recent quarter, it reported earnings of $5.40 a share above $5.24 expected. Earnings estimates have been moving higher, and it is not expected to be any different going forward.
The impressive run stems from a core business that continues to grow at an impressive rate. The pandemic appears to have strengthened the company's core business by giving rise to new opportunities. With the working-from-home trend gathering pace, Broadcom has registered a strong demand for its semiconductors used to power everything from computers to smartphones and computer networks.
While the company operates in a cyclical yet cutthroat business, it’s been able to keep up with trends and competition by coming up with new products that continue to elicit strong demand. Innovation and reinvention have allowed the company to shrug off competition in the highly competitive semiconductor business, conversely generating year-over-year revenue growth.
Net income growth over the years attests to the strength of the core business as well as the balance sheet. Similarly, Broadcom has been able to pay out dividends even as other companies pulled back to conserve capital.
Acquisition’s Impact
Broadcom's solid performance over the years could also be attributed to aggressive expansion through big acquisitions. Acquisitions have allowed the company to expand its footprint into high growth areas, therefore keeping up with the semiconductor business trends. In the recent past, it has acquired CA technologies and Symantec’s enterprise. It nearly acquired Qualcomm until the Trump Administration stopped the deal.
Going by the solid underlying fundamentals, Broadcom is on course to beat estimates both on revenue and earnings. Robust growth in data center chip business and infrastructure software business all but affirm the company’s long term prospects.