Broadband in the Stratosphere

Remember the days way back when good news sent technology stocks soaring? Well, today looks a lot like those heady days for broadband communications company Broadcom (Nasdaq: BRCM  ) . At this morning's high, the stock was up 21.4% and had bested the previous 52-week high by $11.38 a share. Now that's worth writing home about.

Fueling today's stock price explosion is massive fourth-quarter growth. Revenue increased 18.1% sequentially and 52.1% over the same quarter last year. Net income spurted 46.8% sequentially and 174% over last year's fourth quarter. Revenue and income exceeded even the highest analyst estimate.

The next quarter will be strong, too. Analysts were looking for $789 million in revenue. During its conference call, Broadcom guided investors to expect sales in the range of $865 million to $875 million.

Broadcom is at the right place at the right time, enjoying great success selling Gigabit Ethernet and broadband modems. In plain English, the cable, satellite, telephone, cellular, enterprise, and home networks are moving to handle voice, video, and data. Fabless semiconductor company Broadcom has products for that convergence, and its customers include the likes of Apple (Nasdaq: AAPL  ) , Cisco (Nasdaq: CSCO  ) , IBM (NYSE: IBM  ) , and Motorola (NYSE: MOT  ) .

Broadcom separately announced that it will split its stock at a ratio of 3-for-2. The company has also increased its share repurchase authorization to $500 million dollars.

The one dark cloud on the horizon was discussed recently by Foolish contributor Dave Mock. Broadcom has taken Qualcomm (Nasdaq: QCOM  ) to court in a battle over licensing for WCDMA, the next generation of wireless technology; the company has yet to enter this growth market.

Broadcom is selling for 40 times analysts' estimated 2006 earnings (a multiple that will certainly fall as analysts crunch today's revenue guidance). With an expected growth rate of 25% a year for the next five years, the earnings multiple is certainly at a premium level. That premium appears justified, though, given the company's rock-solid, debt-free balance sheet and $1.7 billion in cash, cash equivalents, and marketable securities.

Broadcom's stock is in the stratosphere today, although it has settled back a couple dollars from its high. It's still up an impressive 18% in late afternoon trading. The value guy in me says that there's no reason to rush into this company. While the outlook is strong, the market has priced that in for now, leaving a big downside if the economy should suddenly cool.

Are you looking for the best investments on Wall Street? Motley Fool founders David and Tom Gardner recommend two for your consideration every month in theMotley Fool Stock Advisornewsletter. Try a satisfaction-guaranteed subscription today.

Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Clickhereto see The Motley Fool's disclosure policy.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 510827, ~/Articles/ArticleHandler.aspx, 9/21/2014 6:35:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement