Avago Technologies Ltd (NASDAQ:AVGO) has my attention today as the stock gained an impressive 2.84% to a trading price of $145.51 in pre-market trading. You’ll remember that the shares of Avago climbed an incredible 9.63% in yesterday’s session to touch a new 52-week high of $144.82.
Avago Technologies with its market capitalization of $36.30B is a designer, developer, and global supplier of a range of analog semiconductor devices with a focus on III-V based products. Its product portfolio ranges from discrete devices to complex sub-systems that include multiple device types and incorporate firmware for interfacing between digital systems.
I initiated coverage on Avago Technologies a little over one year ago on May 6, 2014 just after Avago was added to the S&P 500 component. I wrote another piece about the company on September 1, 2014 in a post in which I talked about the company’s outstanding third quarter results. I almost mentioned the fact that Avago had a decent upside potential ahead, and I gave the stock a $90 price target as at January 2015.
Performance in One Year
In the last one year that I initiated coverage on trading AVGO options, the stock has climbed an impressive 110.76% from a 52-week low of $68.71 to a 52-Week high of $144.82. In fact, the stock beat my $90 price target by January as it closed with a $106 trading price on January 30. In addition, the stock has gained 43.48% in the year-to-date period and it has recorded 5 new highs in the last one month.
I am also impressed with the fact that Avago Technologies is clearly in an uptrend as it sports an RSI index of 74.31. It might interest you to know that the stock’s 50-day moving average of $125.85 is higher than its 100-day moving average of $118.58, and it is higher than its 200-day moving average of $102.72.
Why is Avago Displaying Strong Bullish Vibes?
The main reason behind the bullish momentum being recorded in how the shares of Avago Technologies are trading today is the quality of the company’s second quarter (Q2 2015) results that the company posted.
Avago reported Q2 earnings of $2.13 to beat the consensus estimate of $2.01 and to show a 90.17% uptrend on earnings of $1.12 from the comparable quarter last year. It might interest you to know that Avago has consistently beaten estimates in 19 out of the last 20 quarters.
Avago reported second quarter revenue of $1.61B, which underperforms the consensus analysts’ estimate of $1.91B. However, the reported revenue marks a 129.7% year-over-year increase in revenue from revenue of $701M from the comparable quarter last year.
The second reason behind the rally being recorded in the shares of Avago is the company’s announcement confirming the earlier speculations about merger talks with Broadcom. Avago announced today that it would acquire Broadcom in a stock and cash transaction that values the latter at $37B. The acquisition is good news for Avago investors because management expects the acquisition to be immediately accretive to earnings with an estimated $750M to be generated in annual cost synergies in the next 18 months.
How to Trade AVGO Options
The shares of Avago are currently experiencing some resistance at $145, but the support will hold at the 50-day moving average of $125.94 in the worst-case scenario. I am optimistic about the prospects of Avago Technologies going forward, and I recommend buying AVGO call options. You might want to consider buying the AVGO Oct 2015 130.000 call (AVGO151016C00130000) if it drops to an asking price of $15.00 in today’s session.
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