Broadcom: We Raise Our Expectations and Upgrade Moat to Wide, but Shares Still Out of Reach

We are upgrading Broadcom’s economic moat rating to wide from narrow, based on improved confidence in the durability of Broadcom’s technological lead in smartphone and networking chips and our favorable opinion of the firm as an aggregator that can be more valuable than the sum of its parts. Thanks to a longer runway for economic profits, as well as stronger near-term growth and long-term margin assumptions, we raise our fair value estimate for Broadcom to $790 per share from $640. We also raise our capital allocation rating to Exemplary, to reflect our view of the firm’s terrific investment record, while maintaining a Medium fair value Uncertainty Rating. Despite our higher fair value, we still view shares as overvalued.