Headquartered in San Jose, CA and Singapore, Broadcom Limited (AVGO)is a designer, developer and global supplier of a broad range of semiconductor devices., The company was formed following the merger of Avago and Broadcom Corporation in February 2016.

Avago products primarily serve four markets: Wired Infrastructure (50% of Q2 revenue), Wireless Communications (28%), Enterprise Storage (17%), and Industrial & Other (5%). The company has a global presence and a very diversified revenue model.

Excellent Results and Raised Guidance

Broadcom reported strong second-quarter fiscal 2017 results with earnings rising almost 46% year-over-year. Adjusted earnings (including stock-based compensation) were $3.31 per share, ahead of the Zacks Consensus Estimate of $3.02.

Revenues were 4.2 billion, up 18% year-over-year, better than management’s guidance as well as the Zacks Consensus Estimate.

“We delivered strong financial results for our second fiscal quarter with revenue, gross margin and EPS all above the top end of guidance,” said the CEO. “Anticipating that end markets will remain healthy, we expect third fiscal quarter revenue growth of approximately six percent sequentially, driven by solid growth from our wired segment and a seasonal second half ramp in our wireless segment.”

The management raised their guidance for the fiscal third quarter; they now expect revenues of $4.45 billion, better than street consensus.

Rising Estimates

After better-than-expected results and upgraded guidance, the Zacks Consensus Estimates for FY 2017 and 2018 have increased to $13.78 per share and $15.20 per share, from $12.89 and $14.21 respectively, 30 days ago.The company has beaten the estimates in all of the last four quarters, with average quarterly surprise at 6.73%.

Solid Industry Outlook

Semiconductor industry is currently ranked 76 out of 265 Zacks industries (top 29%). With rising demand from many high growth areas, the industry is likely to outperform the broader markets in the coming months.

Bernstein chip analyst recommends Broadcom as a safe haven amidst rising expectations for the chip industry that leave little room for error. “We prefer AVGO (strong FCF cash flow generation creating potential for earnings upside through M&A and/or margin expansion from strong cash return / dividend growth, with long term margin expansion and attractive valuation.”

Increased Content in iPhone 8

The company makes radio frequency chips that are used in smartphones by Apple, Samsung and other mobile device manufacturers.

Avago is a key Apple supplier and expected to gain content iPhone 8. Their content in Samsung’s latest smartphone Samsung Galaxy S8 had also gone up.

Returning Cash to Shareholders

The chipmaker has been paying dividends since 2010. In December 2016, they had doubled their dividend to $1.02 per share. They have a nice dividend yield of 1.74% currently. With strong and rising cash flows, the company should be able to increase its dividend going forward too.

The Bottom Line

With a strong industry outlook, rising earnings estimates and a nice dividend yield, the company looks set to reward investors in the coming months. Trading at a forward PE of 16.98, the stock looks attractive from valuation perspective too, compared to the industry multiple of 20.72 and S&P 500 multiple of about 19.

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