Broadcom‘s (AVGO) rumored acquisition of software firm SAS Institute would be a good fit for the company, Wall Street analysts say. Broadcom stock is approaching a buy point on the news.
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The Wall Street Journal reported Monday that Broadcom is in talks to buy SAS for $15 billion to $20 billion. The deal could close in the coming weeks, assuming talks don’t fall apart, the Journal said.
Cary, N.C.-based SAS sells software for data analytics, business intelligence and data management.
Broadcom’s acquisition of SAS would be consistent with the company’s move to diversify from semiconductors into enterprise software, analysts said.
Broadcom Bulking Up Software Business
In early trading on the stock market today, Broadcom stock was up 0.2%, near 486.90. On Monday, Broadcom stock climbed 1.2% to 485.75 on the acquisition news.
In 2018, San Jose, Calif.-based Broadcom bought infrastructure software firm CA Technologies for $18.9 billion. It then purchased Symantec’s enterprise security software business for $10.7 billion in 2019.
Software business accounted for 27% of Broadcom’s revenue in its fiscal second quarter ended May 2. The remaining 73% of revenue came from its semiconductor business.
“Since Broadcom’s initially surprising pivot to software acquisitions in 2018, the company has consistently expressed its intent to build a software portfolio to expand its reach into IT (information technology) budgets,” Truist Securities analyst William Stein said in a note to clients. “Broadcom’s strategy has been to pay a reasonable price for slow-growth software assets that cannot secure proper investor support in public markets.”
SAS Institute generated revenue of about $3 billion in 2020, but sales have been flat or declining from $3.2 billion in 2016, Stein said.
Broadcom Stock Nearing Buy Point
The acquisition would be about 5% accretive to Broadcom’s free cash flow and earnings per share, Stein said. He rates Broadcom stock as buy with a price target of 554.
SAS “fits into the profile of the kind of business Broadcom would be interested in,” BMO Capital Markets analyst Ambrish Srivastava said in a note to clients. “The implied valuation is in range with (its) earlier software acquisitions.”
Srivastava rates Broadcom stock as outperform with a price target of 550.
Broadcom stock has been consolidating for the past 21 weeks with a buy point of 495.24, according to IBD MarketSmith charts. The buy point is 10 cents above the stock’s all-time high of 495.14, reached on Feb. 19.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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