Broadcomm Stock Recommendation

Company Overview

Market Capitalization $21.95 billion

Revenues $6.61 billion

Enterprise Value $20.69 billion

EPS 1.99

P/E 20.47

Dividend Yield 0.90%

Current Ratio 3.29

Return on equity 22.26%

Return on Assets 9.15%

Operating Margin 14.47%

Profit Margin 16.36%

Stock Price & Ticker $40.74 & BRCM

Broadcom is one of the world's largest semi-conductor companies enabling wired and wireless communications. Its products include delivery of voice, data and multimedia through either a System-on-a-chip (SoC) or software solutions. The company has operations in North-America, Europe and Asia-Pacific. The following chart shows revenues generated from each of the business segments of Broadcom in the year '09. Also, some of the key financial statistics for the company are summarized below.

The company's diversified product portfolio serves as its strength strategic acquisitions as opportunity. It is highly dependent on US markets which is a weakness and faces threats from regulatory environment and litigations.

Industry Overview

The semi-conductor industry's outlook for growth is positive. Semi-conductor Industry Association (SIA) has expected the sales in the industry to grow at around 40.40% in '11 and around 17.08% in the next few years. The revenue share from different regions in ‘09 is presented below and Asia-Pacific is expected to dominate. Also, another report from iSuppli research indicates that wireless communications segment corresponded to second highest growth and would continue to do so with the launch of newer products with 3G/4G feature and increased demand.

Discounted Cash Flow

A. Assumptions:

1) Revenue Growth: Broadcom has a historical average revenue growth rate of 21.92% with the highest in '10 of 54.92%. The high growth rate in '10 can be attributed to the fact that the revenues from the companies they have acquired in the previous years were recognized and also due to the business from their two main customers – Apple and Samsung - who generated about 20% of their revenues. Also, Apple launched its product I-pad 1 and recorded sales of 15 million units in '10.

The future revenue growth rates for Broadcom have been arrived at after analyzing the historical trend, average, Broadcom's growth outlook from