The Best Options Trading Strategy for Broadcom (AVGO) Earnings

On Thursday, September 1st, Broadcom Ltd. (AVGO) will release its Q3 2016 earnings results. The company is currently a Zacks Rank #3 (Hold) and shares are up about 22% year-to-date.

Dave will look into Broadcom’s past earnings, look at what is currently going on with the company, and gives us his thoughts on their upcoming earnings announcement.

Furthermore, Dave will look into some potential options trades for investors looking to make a play on Broadcom ahead of earnings.

Broadcom in Focus

Broadcom Ltd. is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. The company provides data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

Broadcom beat expectations in its Q2 2016 earnings report, topping the Zacks Consensus Estimate of $2.00 by 6.5%.

AVGO has an average EPS surprise of 6.45% for the last four quarters. In Q3 and Q4 of 2015, the company beat our consensus estimate by 5.67% and 6.39% respectively.  Broadcom also topped in Q1 of 2016, surpassing our consensus estimate by 7.25%.

BROADCOM LTD Price and EPS Surprise

BROADCOM LTD Price and EPS Surprise | BROADCOM LTD Quote

Heading into this earnings report, our Most Accurate Estimate forBroadcom is $2.31.  This is higher than Broadcom’s Zacks Consensus Estimate of $2.29.

When the company reported its Q2 earnings in early June, it reported quarterly sales of $3.541 billion and gross margins of 30%.  It also posted Q3 guidance and said that it expects quarterly sales to end up between $3.665 billion and $3.815 billion.  Gross margins are expected to come in between 42.75% and 44.75%.

Broadcom Limited formed as a result of a merger between Avago Technologies and Broadcom Corp.  The consolidation created one of the largest and most diverse chip companies in the market. 

Broadcom signed a three-year agreement with Apple (AAPL), and it will supply the iPhone creator with RF components and modules.  Apple is facing more competition from peers, but it still stands as the market leader in the smart phone industry. 

The corporation is a massive semiconductor supplier in the wireless connectivity and enterprise storage markets, and it has a market cap of $70 billion.  The combined companies allow Broadcom Limited to realize significant cost synergies as it goes forward.  Its diversified portfolio should also help to alleviate risks to its sales numbers.  So far, investors have been happy with the merger, as AVGO stock has climbed by over 30% since the acquisition took place.

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Dave Bartosiak is the editor of the Momentum Trader and Home Run Investor service. He has over a decade of experience in the financial services industry. He has traded forex, futures, stocks, and options. Mr. Bartosiak is a frequent guest on popular business news TV channels such as Bloomberg TV. He’s also the host of a light-hearted, Millennial-minded series of videos called “Trending Stocks.”

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