Broadcom has earned a repeat ‘Buy’ rating and an unchanged price target from UBS analysts after the technology company announced it has entered into two multi-year agreements with Apple to supply radio frequency (RF) and wireless components and modules.
The analysts noted that this deal appears to be largely a re-up of the supply agreements signed between the two parties in 2019 and 2020, which covered the supply of Broadcom’s products through to 2023.
“The announcement today specifies a ‘multi-year’ coverage period, which we think would be safe to assume is also in the range of three years (like the prior agreement) but does not disclose the estimated aggregate revenue that is likely to be generated for AVGO, which in the case of the 2019/2020 agreements was about $15 billion,” they wrote in a note to clients.
They pointed out that Apple represented about $15.7 billion of Broadcom’s total revenue for the period from fiscal 2020 to fiscal 2022.
“With average selling prices (ASPs) having trended higher since then, we think an aggregate revenue number north of $15 billion would be reasonable to assume through 2026,” they wrote.
The analysts wrote that the agreement also appeared to quash speculation from earlier this year that Apple would displace Broadcom components from its devices beginning in 2025, although they noted that Apple continues to push more technology in-house to reduce reliance on external vendors.
“Such efforts are mostly related to digital components though, so in the case of RF — and particularly F-BAR — we see AVGO as fairly well insulated from such efforts,” they wrote.
Taking this into account, the analysts reiterated their ‘Buy’ rating and price target of $695 for Broadcom stock.
“Our $695 PT (unchanged) is based on ~19x enterprise value (EV)/free cash flow (FCF) multiple on C2024E Semis FCF contribution of $13.52 billion and applying ~18x EV/FCF multiple on C2024E Software FCF contribution of $4.43 billion,” they explained.
Broadcom’s shares were trading modestly lower on Wednesday afternoon, down 0.9% at US$680.65.
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