Apple Supplier Nabs New Highs Ahead of Earnings

Analysts are bullish on the stock

Assistant Editor
Aug 31, 2020 at 2:18 PM
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Broadcom Inc (NASDAQ:AVGO) is closing out August strong, up 0.9% at $346.60 at last check -- and earlier hitting a record high of $350.58 -- after BMO raised its price target to $400 from $350. The firm is keeping its "outperform" rating on the shares ahead of its fiscal third-quarter earnings report, due out after the close on Tuesday, September 3. 

Looking at the Apple supplier's earnings history, in the past eight quarterly reports, five of AVGO's post-earnings sessions were positive, including 7.1% pop back in March. The security averaged a next-day return of 4.9%, regardless of direction, which is smaller than the 9.5% move the options market is pricing in this time around. 

On the charts, Broadcom has been guided higher by its ascending 20-day moving average. Now up 10% in 2020 and more than doubling off its March 18 lows near $155, AVGO is about to end its fifth-straight month in the black.

AVGO August 31

Analysts are overwhelmingly bullish on AVGO before this week's earnings, with 18 out of 20 at a "buy" or better rating, and the remaining two at a tepid "hold." Meanwhile, the 12-month consensus price target of $348.78 is a chip shot away from current levels, implying that bull notes like today could be in store later this week.

The options pits are looking relatively confident as well, with double the amount of calls bought for every put in the last 10 weeks at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio stands higher than 80% of all other readings from the past year, meaning long calls are being picked up at a faster-than-usual rate. 

Yet even with earnings looming, premium can be had for a bargain at the moment. The stock's Schaeffer's Volatility Index (SVI) of 46% is in the 24th percentile of its annual range, suggesting short-term options are pricing in relatively low volatility expectations at the moment. 

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