Broadcom (Nasdaq:BRCM) issued improved guidance and wants everyone to be happy. Something about its going to be a better world. The guidance is overly focused on EPS and is starting to lose sight of fundamentals. They claim improvements in cash position and then throw in they have a planned debt offering which means operations will not be spinning off the cash.
So as Broadcom is preparing to talk to bond/debt investors you make your earnings look as good as possible. Hmm. No word on why they need to borrow. I’m sure the lenders will ask. It’s a standard question in debt underwriting.
The dividend seems very anemic at well under 1.5% yield. The Broadcom name is not well-known to income oriented investors. With the latest proposed offering it looks like Broadcom debt will climb over the $1 Billion mark. Market cap is only around $15 Billion. $1 Billion of debt is rapidly becoming a new factor. Investors are not used to seeing such huge debt numbers. Interest payments and the eventual repayment are all becoming increasingly important for a high-tech company in a cut throat hyper competitive market. How you going to do that?
The stock is languishing around its 52 week low. What to do? Share buy back at the low-end. Expensive even desperate.
So the guidance thing has left more questions than answers.
George Gutowski writes from a caveat emptor perspective.
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