Broadcom Stock Falls on CA Acquisition But Cycles Point to a Bounce

Steve Miller

Broadcom (NASDAQ:AVGO) traded -17% lower on Thursday morning, after announcing the acquisition of CA Technologies (CA) for for $18.9 billion in cash.

Broadcom announced after yesterday’s market close, that it had agreed to purchase CA for $44.50 per share. That price implies a premium of 19.5% over CA’s closing price of $37.21.

On a hunt to acquire “mission critical technology businesses,” Broadcom was eager for a win, having stumbled in its recent effort to take over Qualcomm (QCOM).

“With its sizeable installed base of customers, CA is uniquely positioned across the growing and fragmented infrastructure software market,” explained Broadcom CEO, Hock Tan. Meanwhile, CA Technologies CEO Mike Gregoire, noted that “our shareholders will receive a significant and immediate premium for their shares.”

Analysts at Evercore and RBC Capital downgraded the stock, essentially agreeing with the market that Broadcom had overpaid. In any case, it should be noted that the deal still needs to be approved by government authorities in the US, Europe, and Japan.

In analyzing the AVGO weekly chart, we recall our analysis that a head and shoulders top had formed. Our downside projection was for $160. Looking at its market cycles, we can see the stock is in the declining phase of its current cycle. It is now approaching the $188-$194 support zone, and we expect a bounce in the coming weeks.

Broadcom (AVGO) Stock Chart with Weekly Bars

broadcom stock price outlook research avgo decline lower july 2018

 For more from Slim, check out the askSlim Market Week show every Friday on our YouTube channel. To learn about cycle analysis, check out our Cycle Analysis Workshop.


Twitter:  @askslim

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.