Broadcom Corporation Upgraded To Buy; Stock Rises

Broadcom AVGO

The shares of Broadcom Corporation (NASDAQ:BRCM), a global semiconductor solutions provider, have been upgraded from a Hold to a Buy rating and assigned a $45 price target by analysts at Drexel Hamilton.

According to the firm, its positive perspective about the company is based on increased earnings power from core communications, infrastructure and broadband acceleration, and the winding down of its cellular baseband business highlights the potential in high-speed data.

Broadcom explores strategic alternatives

Last Monday, Broadcom Corporation (NASDAQ:BRCM) announced that it had hired JPMorgan Chase & Co. (NYSE:JPM) to help in exploring strategic alternatives for its baseband unit, which include selling or winding down the business. The decision received positive feedback from a number of Wall Street analysts.

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Other analysts’ opinions on Broadcom’s move

Analysts at Jefferies believe that Broadcom Corporation (NASDAQ:BRCM)’s cellular based band business presents a “cellular options straddle” or a “heads I win, tails I win” situation. They explained that the company will either have leverage with success or substantial savings by exiting from the business. They estimated that Broadcom will benefit as much as $0.67 in earnings per share upon completion of a transaction.

On the other hand, analysts at Macquarie commented that they were not surprised with the decision of the company. “Broadcom finally announced its much-anticipated exit from the baseband business… While a cellular exit was one of the primary reasons to own the stock, we believe more catalysts abound in 2H and remain Outperform rated on Broadcom.”

Meanwhile, Joseph Moore, an analyst at Morgan Stanley (NYSE:MS) reiterated his Overweight rating for the shares of Broadcom Corporation (NASDAQ:BRCM) and increased his price target for the stock to $39 from $34 per share.

In a note to investors, Moore wrote, “Broadcom announced that it is exploring strategic alternatives for its baseband business, including potential sale or wind down. The company highlighted $650 mm of net expense savings from such a move (after redeploying $50 mm to other segments), including $100 mm of stock based comp.”

Stock action

The stock price of Broadcom Corporation (NASDAQ:BRCM) increased more than 2% to $36.68 per share as of 12:45 PM ET in New York today. The stock surged more than 9% following its announcement that it is seeking strategic alternatives for its baseband business. Broadcom has gained more than 23% year-to-date.