Broadcom (AVGO) is a top pick on a shift to a growth stock from a value stock, mostly because of boosts from artificial intelligence and VMWare, BofA Securities said Monday in a report.
Compound annual growth in 2024 to 2026 may accelerate to 13% from 5% to 10% normalized in the traditional business from 2017 to 2023, driven by AI silicon and VMWare compound annual growth at 24%, BofA said. Cost savings from VMWare and a strong balance sheet might boost margins to 61%, increasing earnings by 20% annually, the report said.
Broadcom’s earnings per share in 2026 may reach $69, while faster sales at 15% to 17% annually with a metric on margins up to 65% to 67% may drive EPS to $80 per share, the report said.
“There is also the potential for further mergers and acquisitions next year, as gross leverage remains low” and the company “continues to delever its balance sheet,” the report said.
Diverse growth drivers, highly regarded management and a “unique track record of capital appreciation, dividend growth and above-market dividend yield can justify a premium multiple,” the report said.
BofA raised its price target on Broadcom to $2,150 from $2,000 while keeping the buy rating.