Broadcom: A 20:1 Stock Split Is Quite Likely

seekingalpha2023-12-13

Broadcom's high stock price (currently $1060.24/share) has surged 90%+ this year. As a result, a 20:1 stock-split is quite likely in the near future.Stock splits in-and-of themselves are no panacea. ...

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Xkuanx
2023-12-13
Xkuanx
Zero chance happening

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As a result, a 20:1 stock-split is quite likely in the near future.Stock splits in-and-of themselves are no panacea. ...</p>\n\n<a href=\"https://seekingalpha.com/article/4657569-broadcom-a-201-stock-split-is-quite-likely\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Broadcom: A 20:1 Stock Split Is Quite Likely</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBroadcom: A 20:1 Stock Split Is Quite Likely\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-12-13 19:19 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4657569-broadcom-a-201-stock-split-is-quite-likely><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Broadcom's high stock price (currently $1060.24/share) has surged 90%+ this year. As a result, a 20:1 stock-split is quite likely in the near future.Stock splits in-and-of themselves are no panacea. ...</p>\n\n<a href=\"https://seekingalpha.com/article/4657569-broadcom-a-201-stock-split-is-quite-likely\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1244550494.USD","symbol_name":"FRANKLIN GLOBAL MULTI-ASSET INCOME \"A\" (USDHEDGED) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4657569-broadcom-a-201-stock-split-is-quite-likely","article_id":"2391849655","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2391849655","pubTimestamp":1702466343,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Broadcom's high stock price (currently $1060.24/share) has surged 90%+ this year. 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As a result, a 20:1 stock-split is quite likely in the near future.Stock splits in-and-of themselves are no panacea. After all, if I give you a $5 bill and you hand me five $1's back, I am no better off.However, stock splits do have emotional value and also enable small investors to more easily scale-into full positions.In my opinion, Broadcom's strong Q4 earnings report, its excellent free-cash-flow profile, and the VMware acquisition make a stock split even more likely.Meantime, Broadcom continues to be one of the best dividend growth stocks in the entire S&P500 with a 14% increase in the quarterly dividend to $5.25/share, or $21 on an annual basis.Broadcom (NASDAQ:AVGO), long one of my favorite technology stocks, has been on a tremendous bull-run this year: +91.6% YTD. The company recently completed its long-awaited takeover of VMware and also released a very solid Q4 earnings report. At pixel-time the stock was trading at $1060.24 a share, making it increasingly hard for many smaller ordinary investors to scale-into a full position in the stock by making occasional share purchases. As a result, it is quite likely that Broadcom will - in the near future - split the shares. My guess is that the company will declare a 20:1 split.Investment ThesisAll things being equal (while acknowledging they seldom are ...), a stock-split in and of itself does not create shareholder value. After all, if I hand you a $5 bill and you give me five $1's back, I am none the richer. That said, one could argue that a stock-split does give an emotional and psychological lift to the shares. However, two relatively recent examples of 20:1 stock-splits in the technology sector show they are certainly no panacea:Google 20:1 Stock Split (Yahoo Finance)Amazon 20:1 Stock Split (Yahoo Finance)As can be seen in the charts above (by the square \"S\" in the graphics near the volume bars on the bottom), both Google (GOOG) and Amazon (AMZN) split their stocks 20:1 in 2022. Note I predicted the AMZN split in this Seeking Alpha article, although I suggested a 10:1 split was more likely. That was based on the thesis that AMZN wanted to become a more attractive candidate to join the DJIA Index. That still has not happened, but it seems to be a given that some day it will. Amazon is another favorite tech holding of mine, and one could argue that its current valuation is based solely on its AWS cloud segment, which is - in my opinion - ignoring the immense potential of advertising in its retail operations. But that is a subject for another article down the road.Meantime, note that both GOOG and AMZN stocks got a short-term boost after the splits before drastically selling-off in the 2022 tech-sector bear market as rapidly increasing interest rates and a strong dollar took a toll on the tech sector. However, today both stocks are significantly higher than they were at the time of the splits (in the end, fundamentals drive long-term stock value).The old Broadcom split its stock three times between 1999 and 2006. However, since Avago bought Broadcom and adopted its name in 2015, the stock has not split even once. Propelled by a series of acquisitions that were excellently managed and integrated by CEO Hock Tan to unleash strong shareholder value, the stock has appreciated 300%+ over the last 5-years alone.It's time for a split.Impact of A Potential 20:1 SplitAccording to its recent Q4 EPS report, Broadcom ended FY2024 with an average of 427 million fully diluted shares. Despite Broadcom's strong share buyback plan, that was actually up 4 million shares on a yoy basis, primarily because Broadcom was prevented from executing its full share buyback plan while the VMware deal was in-flux. However, from the Q4 conference call we learned:For fiscal 2023, we spent $15.3 billion, consisting of $7.6 billion in the form of cash dividends and $7.7 billion in share repurchases and eliminations. We ended the year with $7.2 billion of authorized share repurchase programs remaining. With the VMware deal closed, we have resumed repurchasing shares under our existing program.The resumption of share repurchases may be one reason for the strong stock-price action since the close of the VMware deal on November 22:Data by YChartsThe other reasons, of course, was the excellent Q4 earnings report combined with the FY2024 guidance - both of which I will get to in a minute. Meantime, a 20:1 stock split would equate to:An estimated 8.54 billion outstanding share count.A stock price of $53.01.An annual dividend of $1.05/share.The yield, of course, would stay the same (2.00%).EarningsBroadcom's Q4 revenue of $9.295 billion was only up 4% yoy and many investors and analysts appeared to be unimpressed. What they are missing is that Broadcom typically grows earnings and free-cash-flow faster than revenue, and this was once again the case in Q4:BroadcomAs can be seen in the graphic, Q4 earnings of $8.25/share were up 5.4% yoy. More importantly to me, Q4 free-cash-flow was $4.723 billion, which was up $262 million yoy, grew 5.9% yoy and was a whopping 50.8% of total revenue.The result of such terrific operational and financial performance was another very generous boost in Broadcom's quarterly dividend: a 14% increase to $5.25/share ($21/share on an annual basis).BroadcomAs you can see from the graphic above (taken from the December presentation, which I strongly encourage investors to review), Broadcom's ability to grow both organically and through M&A, and to deliver strong margins throughout the cycles, has enabled it to become one of the best dividend growth stocks in the entire S&P500 (if not the best).Going ForwardDue to the sizeable impact of the VMware acquisition, Broadcom did not give its typically quarterly guidance, but issued full-year FY2024 guidance instead:Consolidated revenue is expected to be $50 billion (+40% yoy).In total, the Infrastructure Software segment is expected to generate revenue of $20 billion (40% of total), with $12 billion coming from VMware That estimate is based on only 11 months of contribution from VMware and does not include ~$2 billion of revenue from VMware's EUC and Carbon Black units, which Broadcom plans to divest.Silicon revenue is expected to grow from mid-to-high single digits, driven primarily by generative AI.Broadcom also plans to convert \"an installed base of licenses that is over 60% perpetual today to one that will be mostly subscription by the end of fiscal 2024.\" While the conversion may well lead to short-term decline in what the software segment's revenue would otherwise be, it is expected that this strategy will actually accelerate VMware's revenue growth over the next three years.Broadcom also expects to spend ~$1 billion to digest VMware during FY24. The company expects VMware's spending run-rate will exit FY24 at ~$1.4 billion per quarter. That would be down 40% yoy and is yet another example of how CEO Hock Tan has consistently figured out how to ring-out higher margins from his acquisitions.I hope investors listened to the previously referenced Q4 conference call (CEO Hock Tan typically gives some of the most valuable commentary & analysis on the entire technology sector ...) and caught this gem, which is likely one of the primary rationalizations for the VMware acquisition:Well, as you may be aware, in the last VM Explore in Las Vegas, VMware came out and announced in partnership with NVIDIA, the VMware Private AI Cloud Foundation. Another way of describing it is, the VMware Cloud Foundation Software Stack, the whole VCF stack runs NVIDIA coder, runs the NVIDIA GPU. That is the partnership. So, if you’re an enterprise, it’s a very easy step to get into gen AI analytics because the data center that you as an enterprise own on-prem that runs VCF will by default run the NVIDIA GPU software stack as well.Another way to put it, it virtualizes the NVIDIA GPU. That’s the VMware software stack as well. So it’s a very strong attraction in our -- from our perspective to, in fact, accelerate thinking of a lot of enterprise to adopting the whole VCF site. It’s simply because not only does it virtualize the data centers and make your data on-prem data center much more resilient, easier to manage, lower cost to manage, it has the added benefit, a big attraction this is of being able to right away start running AI workloads.Sorry for the length of that quote, but it is important for investors to understand what is going on here. As I have been pointing out on Seeking Alpha for quite some time now, Nvidia's (NVDA) massive success in AI is not due solely to its GPUs designs (i.e. hardware), it's because Nvidia is also a leader in AI-related software as well. That being the case, VMware is going to make Nvidia's software even more valuable to its customers (and to Broadcom investors ...).Summary & ConclusionBroadcom's very high stock price rationalizes a 20:1 stock split. As pointed out in this article, stock splits in-and-of themselves do not create value. However, there are two benefits in my opinion: psychologically, investors like stock splits; a lower stock price would likely encourage many small investors to begin to accumulate shares.Regardless, the big picture investment thesis in Broadcom remains terrific. While the term \"rock star\" is used way too often in the corporate world, Broadcom CEO Hock Tan's performance track record puts him at the top of the tech sector's list (just view the chart below). Going forward, I see no indication, whatsoever, that any change is imminent: Broadcom will continue to grow its revenue, earnings, and free-cash-flow at a strong clip, maintain and grow its already strong margins, and rewards shareholders with arguably the best dividend growth in the business along with significant shareholder buybacks. A stock-split would be totally consistent with management's shareholder friendly policies.I'll end with a 10-year total returns comparison of Broadcom versus the three broad market indexes as represented by the (VOO), (QQQ), and (DIA) ETFs:Data by YChartsAs you can see, it's not even close: Broadcom has returned nearly 7x the total returns of the Nasdaq-100. Hats-off to Mr. Hock Tan and his team of Broadcom employees.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":251504268255408,"gmtCreate":1702439804941,"gmtModify":1702439808933,"author":{"id":"3572907325602131","authorId":"3572907325602131","name":"Xkuanx","avatar":"https://static.tigerbbs.com/e90936aad3336fa7f5cc5bc70cbab1fc","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3572907325602131","authorIdStr":"3572907325602131"},"htmlText":"Zero chance happening&nbsp;","listText":"Zero chance happening&nbsp;","text":"Zero chance happening","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/251504268255408","repostId":2391849655,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":3,"commentSize":1,"repostSize":2,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2391849655"}