Why Broadcom Inc (NASDAQ: AVGO) stock is killing it

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Broadcom Inc (NASDAQ: AVGO) stock surged over 5% in the pre-market session though the company was better than expected first quarter earnings and said it would return around $12 billion to stockholders this year through dividends and stock buybacks. Adjusted EBITDA was $3.24 billion and represented 55.9% of net revenue. AVGO spent $99 million on capital expenditures. As a result, the company had a record Q1 free cash flow from operations at $2.03 billion, or 35% of revenue. This represents 39% growth in free cash flow from operations compared to Q1 of 2018. Fiscal Q1 is typically the seasonally weakest cash flow quarter, due to the annual performance bonus payment the company makes to the employees in the quarter that the company accrue for throughout the prior fiscal year. In Q1, the company paid approximately $530 million in APB cash bonuses to the employees. And second, the company accrued $723 million of restructuring integration expenses of which that includes $363 million of cash payments in the quarter. AVGO ended the quarter with $5.1 billion of cash, $37.6 billion of total debt, 396 million outstanding shares, and 451 million fully diluted shares outstanding.

AVGO in the first quarter of FY 19 has reported the adjusted earnings per share of $5.55, beating the analysts’ estimates for the adjusted earnings per share of $5.22. The company had reported the adjusted revenue growth of 8.7 percent to $5.79 billion in the first quarter of FY 19, missing the analysts’ estimates for revenue of $5.82 billion. The Semiconductor Solutions segment revenue was $4.4 billion and represented 76% of our total revenue this quarter. This was down 12% year-on-year on a comparable basis. Infrastructure Software segment revenue was $1.4 billion and represented 24% of revenue. SAN switching continues to perform extremely well.

In Q1, AVGO returned $4.6 billion to stockholders consisting of $1.1 billion in the form of cash dividends and $3.5 billion for the repurchase and elimination of $14.2 million AVGO shares

For FY 19, on a non-GAAP basis, operating margins are expected to be approximately 51%. Net interest expense and other is expected to be approximately $1.25 billion. The tax rate is forecasted to be approximately 11%. Depreciation is expected to be approximately $600 million. CapEx is expected to be approximately $550 million. And as a result, free cash flow from continuing operations is expected to be approximately $10 billion. And finally, stock-based compensation expense is expected to be approximately $2 billion.

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