Sunday, December 9, 2018

Subtracting Clarity Won't Make The Broadcom Case Stronger

Operationally, I can’t really find much to criticize in Broadcom’s (AVGO) fiscal fourth quarter, even if it does look like the wireless business is looking a little weaker heading into the next year. The central debate on Broadcom remains the CA acquisition and whether this foray into enterprise software can and will generate attractive returns for shareholders. The jury is still very much out on that, though management has made it clear that they look at this as a margin/FCF-rich opportunity and that they’re already willing to consider other enterprise software deals.

As I’ll discuss later, I think Broadcom’s move away from greater transparency is a mistake and disrespectful to shareholders, but it doesn’t really change the intrinsic value. Between a chillier market for semiconductor stocks and ongoing concerns about the CA deal, Broadcom continues to look undervalued below $300.

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Subtracting Clarity Won't Make The Broadcom Case Stronger

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