NEW DIRECTIONAL CALL PLAYS
Avago Technologies - AVGO - close: 147.94 change: +1.59
Stop Loss: 143.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on December -- at $---.--
Listed on December 29, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below
AVGO is probably best known for being a chip supplier to Apple Inc. (AAPL). Shares of AAPL have struggled the last half of 2015 on worries about slowing iPhone sales. This worry has not impacted shares of AVGO.
AVGO is in the technology sector. They're part of the semiconductor industry. According to the company, "Avago Technologies Limited 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 and CMOS based semiconductor design and processing. Avago's extensive product portfolio serves four primary target markets: wireless communications, enterprise storage, wired infrastructure, and industrial & other."
We can't mention AVGO without mentioning their $37 billion acquisition of Broadcom (BRCM). Here's a description of BRCM, "Broadcom Corporation, a FORTUNE 500® company, is a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. With one of the industry's broadest portfolio of state-of-the-art system-on-a-chip solutions, Broadcom is changing the world by Connecting everything®."
This acquisition of BRCM was announced in May 2015. The combined company was initially valued at $77 billion. Together they will have annual sales of $15 billion with $6-7 billion in free cash flow. The merger is expected to close on February 1, 2016.
Without BRCM, AVGO has been delivering impressive earnings and revenue growth. Last year AVGO saw earnings surge from $1.16 a share to $4.90. This year Wall Street expects AVGO's earnings to hit $9.68 a share. Revenue growth over the last five years has averaged more than +23% a year.
AVGO's most recent earnings report was December 2nd. The company announced their Q4 results with earnings rising +26% from a year ago to $2.51 a share. That beat estimates by 13 cents. Revenues were up +15% to $1.85 billion. Gross margins improved from 51% in Q3 to 54% in Q4.
The stock surged toward resistance near $150 following this better than expected earnings report.
Several days ago RBC Capital Markets upgraded AVGO to one of their top picks. RBC analyst Amit Daryanani shared his opinion on the company, saying,
"Our bullish bias is predicated on our belief that AVGO will expand EPS from $9.24 in CY15E to [more than] $16.00 by CY18E driven by multiple levers - BRCM integration, asset divestures, RF ramp-up, cost containment and potential deleveraging ... we estimate [less than 30%] of future EPS growth is predicated on organic revenue dynamics and 70%+ is driven by AVGO's ability to curtail costs, optimize the portfolio, and further deleveraging."
Daryanani raised their AVGO price target from $165 to $170.
Currently the point & figure chart is very bullish and forecasting a long-term target of $213.
Technically shares of AVGO appear to be consolidating sideways beneath major resistance at the $150.00 level. If the stock breaks out we want to be ready. Tonight we are suggesting a trigger to buy calls at $150.25.
Trigger @ $150.25
- Suggested Positions -
Buy the FEB $155 CALL (AVGO160219C155) current ask $5.00
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike