저자: Dividendology진행자 · 외국인
요약 보기
브로드컴 주가가 최근 1주일 약 20% 하락했지만 애널리스트 평균 목표가 $461.93(약 41.6% 상승여력)이 유지됨. 실적은 EPS $1.95로 상회, 매출 180.2억달러(+28%), 배당 10.2% 인상. AI 백로그 730억달러가 18개월 내 인식될 전망이며 2024년 연매출(약 515억달러)을 상회. 밸류에이션은 선행 PE 32.3배, 역DCF상 연 26~27% FCF 성장이 반영된 수준이라고 평가. 발표자는 주가 하락 후 관심 종목으로 복귀했다고 언급.
다듬은 글
Broadcom stock has been crashing. While the company is only down by about 4% in the last month, if we look at where they were trading before they released their recent quarter's earnings, it was around $47 a share. Which means the stock has now fallen by about 20% in just the last week. But what's so interesting about this is despite the selloff we've seen in about the last week, Wall Street analysts are still incredibly bullish on this company.
In fact, the average price target is $461.93 over the next 12 months, giving them 41.56% upside. And what's interesting about this is if we look at the history of the valuation multiples, the PE multiple for Broadcom, it has surged dramatically in the last 3 to four years. But if we look at just the last 6 months, it's actually now trading at its lowest valuation in the last 6 months.
And if we look at the last year, we can still see it's trading a bit below its historic average valuation multiple, at least when we look at it over the last year. So, is Broadcom interesting at its current prices? Does this recent sell-off present opportunity, or is there more reason to be concerned?
There's a lot we need to break down. And keep in mind, Broadcom is actually one of the larger positions in my portfolio. I'm currently up about 542% on this position. So, this stock is obviously important to me. So, let's go ahead and break it down. Now, if we go ahead and dive into the recent earnings news, what we can see is they actually beat on top and bottom lines.
Q4 non-GAAP EPS of $1.95 was a beat by about 8 cents in revenue of 18.02 billion, was up over 28% year-over-year and a beat by 560 million. And on top of this, like clockwork, the company again announced a doubledigit dividend increase of about 10.2%. Now, for reference, the rate at which Broadcom has grown dividends over the past few years has just been astronomical.
The 10-year dividend cagger is above 30%. The 5-year dividend cagger above 12%. And what's beautiful about this is this has all been backed by growing free cash flow. It's been sustainable dividend growth. So, the company's grown free cash flow at just an incredible rate over the past decade at about 38.16%.
But not only has free cash flow been growing, one of the things that's also been happening in the background is if we look at the free cash flow analysis sheet is we can see free cash flow margins have been expanding. Look at this. The free cash flow margin from 2015 to 2017 was in that 20 to 30% range, but lately it's been closer to that 40 to 50% range.
Now, what is the free cash flow margin? Well, it's essentially telling us for every $100 in revenue the company generates, how much is actually becoming free cash flow. So, yes, things like revenue have grown at a high rate for this company over the past decade. Revenue per share has gone from $1.70 to around $11.15.
So, it's no surprise to see how fast free cash has grown, but the company is also becoming more operationally efficient. the margins are expanding and again this is a large reason why this company has been one of the most successful year to date in the S&P 500 one of the best performers and if we look at the last 5 years it's up over 651% now I think when a lot of people look at a chart of a stock they see it's up over 600% in a short time period just 5 years the initial inclination that we all make is that the opportunity is gone we've already missed an opportunity but that is not the right way to think about stocks That's definitely a mistake I made when I was first starting out.
But I've made a lot of money on stocks buying them at 52- week highs after they've already climbed 100% when I've come to the realization it's still a quality company growing earnings at a high rate trading at a reasonable valuation. So the question we now need to ask is that the case for Broadcom? But first, I'd like to say thank you to Dividend Wealth for sponsoring this video, who's currently running a holiday sale where you can actually get 50% off the lifetime or yearly plans.
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You can check it out at the link in the description or the pinned comment. Well, let's get a little bit of history about Broadcom. What do we know about this stock? And for reference, I was actually writing about them over on dividendology.com just the other day. I wrote a report on the list of most upside dividend stocks based on Wall Street analyst price targets.
And Broadcom was one of the stocks that was discussed. And what we need to understand about this company is there's really two main business segments. We have semiconductor solutions and infrastructure software. Now the semiconductor solutions is massive. They're basically developing custom chips that are critical to hypers scale AI data centers.
This is used by companies like Google Meta and Anthropic. And then we have infrastructure software. The segment includes VMware, mainframe software and enterprise infrastructure tools that are deeply embedded in corporate IT stacks. And these products carry extremely high margins and recurring revenue characteristics.
Obviously, one of the things I personally love, you should as well. We love recurring revenue. So, what a lot of people seem to miss when they look at Broadcom is just how much growth has been accelerated through successful acquisitions over the last decade. There's a lot of companies who struggle to make successful acquisitions.
Sometimes it's something they turn to when revenue isn't growing organically, but that hasn't been the case for Broadcom at all. Free cash flow growth has been exceptional as we've already seen and we have to remember the five options a company has with free cash flow. Reinvest back into the business.
They can pay down debt, do mergers and acquisitions, buy back shares or they can pay out a dividend. What's best obviously depends on each individual company and Broadcom has obviously seen opportunities to pursue acquisitions over the past decade and it's gone very very well for the company. So after their recent acquisition of VMware, Broadcom moved beyond just selling the physical building blocks of data centers and into controlling the brain quote unquote that sits on top of that hardware.
Instead of only providing chips and networking equipment, Broadcom now owns the software that determines how computing workloads are deployed, managed, and optimized across an organization's infrastructure. So, Broadcom has become deeply embedded into this entire AI process, and we'll see the physical proof of that in just a moment.
But, let's talk about the sell-off. Why did this happen? Why did the stock sell off around 20% in the last week or so? Perhaps some of it was the fact it might have been trading at a bit of a stretched valuation. But here's the key quote. We expect Q1 consolidated gross margin to be down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue.
As a reminder, consolidated gross margins through the year will be impacted by the revenue mix of infrastructure and semiconductors and also product mix within semiconductors. So basically what they're telling us is although revenue and earnings be estimates, they're flagging AI related products and the fact that they carry slightly lower gross margins.
So if those AI related products are growing revenue at a higher rate, then technically gross margins overall would slightly decline as the AI sector of the business traditionally has lower margins than the traditional software and networking businesses. So yes, something to make note of, but but not something I'm truly overly concerned with.
In fact, here's what we have to understand. I see a lot of murmurings of people concerned about a AI bubble. And who knows, perhaps partly some of that could be true. But here's what's so important to understand about Broadcom. This company is not trading at a valuation that's built on hype. The Ford PE multiple is just sitting at 32.32 for a stock that's projected to grow earnings at an astronomical rate.
Look at the earnings estimates over the next few years. We have 47% 36 27% 13% 16.5. That is unbelievable earnings growth for a stock trading at a PE multiple of 32.32. But you might be thinking, "Yes, but that's earnings estimates. There's not proof that that demand will actually be there yet. But if you are paying close attention to the recent earnings report, you know that's not true.
In the recent earnings report, yes, they outlined their target of 19.1 billion Q1206 revenue target. But here's the key. AI backlog has surged to 73 billion. Here's a direct quote from the CEO. Our total order on hand in excess of 73 billion today, which is almost half of Broadcom's consolidated backlog of 162 billion.
We expect this 73 billion in AI backlog to be delivered over the next 18 months. So a relatively short time period. Now obviously 73 billion backlog doesn't mean it's going to be immediate revenue that's recognized. But it is going to be recognized over a short-term time period. To put this into context, if we jump over to the profitability sheet and look at Broadcom, we can see revenue in 2024 was about 51.5 billion.
So, their backlog is already higher than their record year of revenue in 2024, and it's going to be recognized in just an 18-month time period. So, the backlog alone is 1.5 times one full year of sales. So, this AI demand is not theoretical. It's real. Customers like Google, Meta, and Amazon, and others are already locked in.
This is not a stock trading at a sky-high valuation without the fundamentals to justify it. the demand is there and this is one of the reasons I'm still so excited about holding this company in my portfolio and I actually think at its current prices it may have even just become interesting again. So let's talk about the valuation for a moment.
Now anytime we're talking about a stock that's growing revenues, earnings, and free cash flow at a very high rate, it a lot of the times makes sense to look at them through the lens of a reverse discounted cash flow analysis, seeing how much growth is priced into the stock. So with 0% growth, obviously the stock would be worth around $44.30, 30 which is dramatically lower than the current share price.
But if we start bumping this up 10%, 20%, we start getting closer but we can see at about 25% we get close to the current price and at about 27 maybe 26% we get very close to the current share price of the company. Now 26% free cash flow growth over the next decade sounds very ridiculous. There's very few companies in the entire world that would be capable of this, at least publicly traded companies.
But when we're talking about a company that over the next year, just to start is projected to grow it at about 47 48%, the following year 36 to 37% and the next year around 27% it becomes quite a bit easier to start hitting this type of number on a compounded annual growth rate basis over the next decade, especially when the first few years are so high.
But again, you can see there's a lot of growth priced in. I do want to be clear. So let's go ahead and look at them from a sensitivity analysis perspective. And what we're going to do instead of projecting a future EPS growth rate is simply copy and paste the average analyst estimates over here to our sensitivity analysis.
And we're not going to account for 2029 and 2030 since we don't have analyst projections for those years. But what type of PE multiple should they trade at? Again, right now the average PE ratio over the last decade is about 35.68, but really not the best way to look at the stock since the growth story has changed fundamentally so much in the last few years.
So, let's assume that they trade out a PE multiple of sitting right at 35. What you can see is by 2027 and 2028, you're easily getting compounded returns that outperform the market. We're talking about a 16% compounded annual growth rate. And that doesn't include the dividend, which right now the yield is relatively low, about 0.72%, but it's been growing at an exceptionally high rate.
If the PE multiple pulls back to 30, you're still looking at returns that beat the market. And even at a PE multiple of around 28, you're still getting returns beating the market. So what I'm trying to say is all of a sudden Broadcom doesn't appear to be trading at as of stretched of a valuation as it was literally just a couple of weeks ago.
When we see a stock that's up 36% in the last year, year to date up 41% and in the last 5 years 652%. It's difficult to think that there could be any opportunity whatsoever. But the rate at which this company is projected to grow earnings and the fact they already have backlog that's going to be recognized in the next 18 months absolutely starts to make me think there's probably more opportunity with this stock than a lot of retail investors realize right now.
So while this is a stock I've held in my portfolio for years now and it's done exceedingly well. It's my best performer. All of a sudden this is a stock that's high on my watch list once again. So go ahead and let me know what you think of Broadcom in the comments down below if you plan on buying or selling. And like always, please don't forget to like and subscribe to the
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