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브로드컴(AVGO) 펀더멘털 분석 영상. 6개 지표 체크리스트 중 ROC 5년 평균 약 9%로 14% 기준 미달(X), 매출·순이익·FCF 성장 및 주당지표 상승(체크), 순부채는 5년 FCF 이내로 양호(체크), FCF 수익률 평균 4.4%로 5% 기준 미달(X). 배당수익률 3.5%, 배당 증가 지속 가능성 긍정적. DCF 적정주가 약 512달러, 기대수익률 약 16% 제시. VMware 인수(610억 달러, 부채 조달 약 320억 달러) 관련 레버리지 증가 우려 언급. 영상 시점 2022년 11월 기준 과거 분석이며 투자 조언이 아님을 명시.
다듬은 글
hello and welcome back to Global value in today's video we're performing a fundamental stock analysis of broadcom Inc ticker symbol avgo we're looking at broadcom today as a subscriber request their business is also trading relatively close to their 52-week low and they are currently paying out a three and a half percent dividend yield so that is quite a bit better than what an S P 500 ETF would be paying out we want to be looking at a company's fundamentals to understand if that's potentially sustainable or not so we'll be doing just that later on right now broadcom is trading for 469.47 per share so far this year their stock price is down 16 percent over the past five years broadcom has compounded at a rate of 12 percent annually over 10 years their stock price is compounding at a rate of 30 annually which is just insane and going back over 13 years to win the business was publicly listed broadcom is compounding at a rate of 28 annually their stock price has increased by 26 times in just the last 13 years alone in their additionally High three and a half percent dividend yield would be added to these returns for as long as they've been paying out dividends so just huge returns for broadcom over this time so broadcom is trading about 50 over their 52-week low which is down more than 200 from their 52-week high they are a very large business they have a 190 billion dollar market cap for more background about the company broadcom the combined entity of broadcom and avago boasts a highly diverse product portfolio across an array of end markets avago focused primarily on radio frequency filters and amplifiers used in high-end smartphones such as the Apple iPhone and Samsung Galaxy devices in addition to an assortment of solutions for Wired infrastructure Enterprise storage and Industrial end markets Legacy broadcom targeted networking semiconductors such as switch and physical layer chips Broadband products such as television set top box processors and connectivity chips that handle standards such as Wi-Fi and Bluetooth the company has acquired brocade CA Technologies simatex Enterprise security business and has a pending deal to acquire VMware to bolster its offerings and software VMware owners just recently approved the 61 billion dollar broadcom merger with over 99 of the company's shares which voted cast in favor of the deal broadcom Inc was incorporated in 2018 and is headquartered in San Jose California so for our fundamental analysis today we are performing the select six analysis taking a checklist style approach of six standard Financial metrics to come to a holistic and beginning understanding a broadcom based off of their business fundamentals so this analysis will continue to evolve and improve over time it's still a work in progress and it also serves as an opportunity to learn in public so with that said let's get right into today's analysis so starting things off with metric number one we want their average return on Capital over their last five years to be above 14 so there are two reasons for this the first is that over the long run over the course of decades a stock is likely to return approximately what its underlying business returns and these business returns are going to be captured here by return on Capital the second is that the average publicly listed business earns about a seven percent return on Capital so by asking for 14 or higher as a benchmark here we can potentially build in some margin of safety for ourselves based off the overall quality of the business being about twice as good as average so broadcom's return on Capital has bounced around somewhat over this time frame over their last 12 months they're actually earning very high Returns on Capital at nearly 21 however averaged out over the last five fiscal years broadcom is only earning about a nine percent average return on Capital so while that is just slightly above where an average business is that is below that 14 Benchmark we're looking for and so this is going to be an X to start things off on Metric number one next up for metric number two here we're taking a high level overview of the cash coming into the business we're looking for growth in their revenues earnings and free cash flows over the last five years and this metric is all or nothing in nature either all three of these are going to be up for a check or if even one of them is down this entire metric will be an X so over this time including their last 12 months worth of numbers broadcom has grown their revenues by more than 80 percent their earnings are also up however they've been rather sporadic throughout this time 2018's earnings were up big because of a tax income break but probably the most important aspect of this is that including their last 12 months worth of numbers their free cash flows are up almost triple over the last five years alone so that is very strong growth this growth would include the fact that they've had a number of mergers and Acquisitions over this time and with their upcoming VMware acquisition this likely seems to be the case going forward but nevertheless they've strongly grown their business this is going to be our first check on Metric number two next up for metric number three here we're building off of the previous metric but we're looking at the business on a per share basis from the perspective of an individual shareholder in the company so we're looking for earnings per share growth over the past five years again 2018 was an atypical year for the business because of an income tax break we learned that in metric number two their earnings were up over this time earnings are only the numerator in this equation thankfully though their denominator has not changed much broadcom has only issued about three percent additional shares over the last five years which is somewhat surprising giving their mergers and Acquisitions but it's likely a good thing for shareholders that they were not excessively diluting shareholders throughout this period and that they were still able to grow their business so this is going to be another check here on Metric number two as they've managed to grow their earnings per share over the last five years metric number three is going to be very similar here we're looking for free cash flow per share growth over the past five years as well again their free cash flows are up almost triple over this time and because they've only deluded shareholders by about three percent which in and of itself isn't great but but it's acceptable they've managed to grow their free cash flows per share by quite a bit almost up at the same rate that their free cash flows are up so this is another check here on Metric number four and so far through our first four metrics we are three for four next up for metric number five here we're looking at the the amount of Leverage that the business is utilizing so we don't want to be investing in overly levered businesses because during economic downturns it's overly levered businesses that are going to be at the greatest risk of poor outcomes so for this metric we want their net debt which is long and short-term liabilities minus cash and short-term Investments to be below the amount of free cash flow that broadcom has produced over the past five years so broadcom ended last year with 28 billion dollars in net debt they've increased this over the past year to currently they have 29 and a half billion dollars in that debt which does seem like it's a lot however over the last five years broadcom has produced more than 48 billion dollars in free cash flow so that is a lot of free cash flow that they're bringing in and that is way more than enough to be able to healthily support their debt load so this is going to be a check on Metric number five it is worth noting that with this VMware acquisition you do want to do the work to understand how broadcom would be potentially paying for that so sharing some of the details of that VMware acquisition VMware shareholders can either elect to receive 142.50 in cash or about a quarter of a share of broadcom common stock for each VMware share that they hold the deal is subject to proration so that approximately 50 of VMware Shares are going to be exchanged for cash and the other 50 are going to be exchanged for broadcom common stock so it looks like that's 61 billion dollars is going to be split approximately 50 50.
with 32 billion dollars of that coming from debt financing and the other 29 billion dollars coming from shareholder dilution needless to say this debt Position will be increasing significantly once that merger goes through but in the meantime this is still a check so far through our first five metrics we have three checks and two x's then our sixth and final metric the big metric of them all we want their average free cash flow to their total Enterprise Value to give us a yield above five percent if this is the case this will give us another potential reason to be interested in the business as it'll give us a slight risk premium to the rate of the 10-year treasury yield we're using their total Enterprise Value because it's going to take into account both their market cap and their net debt position and give us a more realistic economic picture of the the business that's more similar to as if broadcom or a private company currently broadcom has about a 220 billion dollar total Enterprise Value and we learned that over the past five years they produced 48 billion dollars in free cash flow this means that in an average year broadcom is producing about 9.6 billion dollars of free cash flow so when we divide their 9.6 billion dollars of average free cash flow by their 220 billion dollar total Enterprise Value that is going to give us an average free cash flow to Enterprise Value yield of approximately 4.4 percent so that's right in line with the rate of the 10-year treasury currently but that is below that risk premium we're looking for at five percent on an average basis so this means that this is going to be an x on Metric number six worth noting however is that over their last 12 months broadcom has brought in significantly more cash flow than what they've been doing in an average year over this time broadcom has produced 15.3 billion dollars of free cash flow in their last 12 months so to get a current free cash flow to Enterprise Value yield for the business when we divide their 15.3 billion dollars of their last 12 months of free cash flows by their 220 billion dollar total Enterprise Value that is going to give us a seven percent current free cash flow to Enterprise Value yield for the company this would be above that minimum risk premium we're potentially looking for and so it's likely that the economic reality for the business is going to be somewhere between these two again keep in mind that all of this financial data only relates to broadcom as a business it's not related to any of the potential future that the business would have combined with VMware so even though the broadcom section of the business looks good on a number of these different metrics you'd still want to do your own due diligence and learn more about both broadcom and VMware in more depth and especially learn more about this deal to try to understand if this is truly going to be value additive for existing broadcom shareholders then here we're taking a look at broadcom's dividend profile so again broadcom currently pays out a three and a half percent dividend yield which is well above that of the yield of an S P 500 ETF right now broadcom has steadily increased their dividends per share in all five of the past years and they've also steadily increased their free cash flows per share in all five of these years as well over this time broadcom has maintained a significantly healthy margin between what they're bringing in in free cash flows versus what they're paying out in dividends and so if this is any indication of what the potential future for the business may look like it looks like broadcom will be able to sustainably and healthfully support a continually growing dividend for a good while to come into the future this again is going to be dependent on the businesses abilities to produce healthy amounts of free cash flow and while this is no guarantee things do look good for broadcom going forward from a dividend perspective if that's one of the reasons you're potentially interested in the business then finally here we're using a discounted cash flow model to come to a potential fair value for broadcom so starting with an average of their free cash flows over the last five years and then projecting these out over the next 20 years based off of broadcom's ability to to historically grow their free cash flow since they became a publicly traded business so assuming a growth stage over the next 10 years where their free cash flows grow at a rate of 20 annually which amazingly that's how fast they've grown their free cash flows since 2007 then if we assume a terminal stage for the business out over the next 10 years after that so projecting 20 years into the future in total where their growth rate declines dramatically and falls all the way to four percent annually then based off these historical growth assumptions which are assumptions that you need to confirm or disconfirm for yourself whether or not these are going to be potentially applicable for broadcom going forward so you need to do your own homework here if we're adding in their tangible Book value today then based off of today's prices it looks like you could reasonably expect about a 16 rate of return going forward from broadcom with about a 512 dollar per share fair value for the business so again these are based off these assumptions which you need to do your own homework on to verify or disconfirm a discounted cash flow model is just like any other model in any other discipline its outputs are going to be sensitive to what you put into the model so you have to understand whether or not these are potentially going to be applicable or not going forward for the business broadcom's past growth encompasses a lot of mergers and acquisition and with their upcoming potential merger of VMware it looks like that would continue to be the trend for the business so again not all of this would be organic growth in fact probably most of it hasn't been also keep in mind that this discount rate would be including their dividend yield so three and a half percent of this would be distributed to shareholders as dividends and then most importantly this type of analysis is not Financial advice it's not a buy or sell recommendation of any security and before considering any potential investment decision please consult with the properly licensed and registered legal and financial professionals so in summary broadcom checks the box on four out of six of our metrics they're earning just slightly above average Returns on Capital that were below that 14 Benchmark we were looking for they're only coming in at about nine percent on average due to some mergers and Acquisitions the business has grown their revenues earnings and free cash flows all by strong amounts even with all of this deal making activity they've only diluted existing shareholders by three percent over the last five years and so their per share metrics are up as well however about 29 billion dollars of their VMware deal is going to be coming from a share swap so they will be issuing new shares as part of that deal then looking at the amount of Leverage in the business currently they're producing a lot of free cash flow to be able to support all of the debt that they have in the business but again with their VMware they're going to be taking on 32 billion dollars in debt and assuming debt from vmware's business so their ability to service this High absolute debt load is going to depend on how their acquisition goes and how they're going to be able to bring in free cash flows from VMware then on an average basis they're free cash flows to their Enterprise Value yield are just about right in line with the rate of the 10-year treasury yield and so that does not give us that potentially adequate risk premium we were looking for but on a current basis it looks like the business would so the reality for the business is likely somewhere between the two then looking at their dividend profile it looks like broadcom is able to healthily and sustainably support a strong and growing dividend with even stronger and growing free cash flows they've done so over the past five years and it's reasonable to expect that they'd be able to continue doing so into the future and finally performing a discounted cash flow analysis of broadcom taking an average of their free cash flows over the last five years and projecting those out based off of how a broadcom has been able to historically grow their free cash flows since 2007.
So based off of those assumptions which you need to do the work on to validate or invalidate for yourself and to determine whether or not those are going to be potentially applicable to give a baseline projected estimate for broadcom going forward then you could reasonably expect about a 16 rate of return going forward from broadcom from today's valuations it's worth reiterating that this type of analysis is not Financial advice it's not a buy or sell recommendation of any security and before considering any potential investment decision please consult with the properly licensed and registered legal and financial professionals this analysis instead serves as a beginning and holistic understanding to help you determine whether it's worth your time and energy to dig in and learn more about broadcom and their upcoming VMware acquisition so one resource that will definitely help you stay up to speed with what's going on in the market and help you learn more about broadcom is Seeking Alpha checking out Seeking Alpha directly supports the channel as I'm part of their affiliate program so most of you probably know Seeking Alpha as a source of community written articles on different stocks but over the past little while they've actually become a lot more than that with their new offering which is Seeking Alpha premium premium has a number of different features where you can track buy a hold and sell ratings on your favorite stocks these ratings are from the Seeking Alpha Community Wall Street analysts and seeking Alpha's very own algorithm you can see earnings call transcripts investor presentations SEC filings and press releases all in one place you can add your own margin of safety targets and get alerts when your favorite stocks hit that level you can get unlimited access to Seeking Alpha articles and you can tailor your reading experience based on the type of investor you are you can get 10 years worth of financial data on any stock to help you with your analysis you can also import your portfolio into your Seeking Alpha dashboard to make researching easier and if that didn't convince you the best thing is that an annual plan is only 99 bucks that's just 27 cents per day through my referral link down in the description below normally premium is 239 dollars but they are currently running a general offer for 119 but if you use my link it's even cheaper just 99 bucks so check it out if you're interested so as a value investor you're ultimately trying to conduct your research as if you're going to own 100 of the company going forward and you can truly understand the underlying essence of that business and understand what's important and what's not important for the company so through this deeper research you'll be able to learn more about both the qualitative and the quantitative aspects of broadcom and be able to determine for yourself what a reasonably appropriate intrinsic value for the business will be so with that said that's it for today's fundamental stock analysis of broadcom Inc ticker symbol avgo rodcom was a business that was very highly and adamantly requested by subscribers so I'm happy to make an analysis of it so if you enjoyed today's video please be sure to like the video subscribe to the channel for more stock analysis videos and comment down below what business you want me to take a look at next time thanks for learning about broadcom with me and have a great day
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