NEW DIRECTIONAL CALL PLAYS
Avago Technologies - AVGO - close: 75.42 change: +0.42
Stop Loss: 71.49
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.58 million
Entry on July -- at $---.--
Listed on July 21, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
Avago Technologies is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing Backed by an extensive portfolio of intellectual property, Avago products serve four primary target markets: wireless communications, wired infrastructure, enterprise storage, and industrial and other (source: company website and press releases).
The company's products are everywhere. They make components for the industrial, automotive, solid state lighting, communications, consumer electronics and appliances, the military, and medical. A couple of months ago AVGO completed their $6.6 billion acquisition of LSI. Management believes they can wring out $200 million in annual synergies by the end of 2015. One analyst suggested that AVGO should benefit from China's rollout of a 4G wireless network. Plus the LSI acquisition could boost AVGO's margins.
Speaking of margins, AVGO continues to show margin improvement. The company last reported earnings on May 29th and said gross margins improved to 54% when they were only expecting 51.5-53.5%. Management then guided higher for the third quarter and expects margins to rise to the 54-56% range. Earnings were also better than expected. Wall Street wanted to see a profit of 77 cents a share. AVGO delivered 85 cents. Revenues surged +24.7% to $701 million, which was better than the $678 million estimate.
LSI is scheduled to report earnings next in late August (27-28th).
There are a rising number of bulls on this stock. The number of mutual funds that own shares has risen from 856 to 981 in the last year.
Multiple firms have price targets in the $85 region.
Citigroup just raised their price target to $90.
Shares of AVGO look poised to breakout from its $72.00-75.50 trading range. The July 7th high was $75.55. We are suggesting a trigger to buy calls at $75.75. The July 18th low was $71.66 so we'll start with a stop loss at $71.49.
Trigger @ $75.75
- Suggested Positions -
Buy the Oct $80 call (AVGO141018C80) current ask $2.30
Option Format: symbol-year-month-day-call-strike