Marvell Technology Upgraded Following Several Challenging Years - Marvell Tech (NASDAQ:MRVL)

After Marvell Technology Group Ltd. MRVL beat earnings estimates for the first quarter, Oppenheimer research analyst Rick Schafer, has upgraded the stock to Outperform and raised his price target to $23.

Schafer said: “Following several challenging years under the old regime, new management has printed four consecutive EPS beats and shifted exposure away from mobile, leaving us confident in Marvell's EPS/FCF growth trajectory. We believe Marvell's structurally improved model highlighted by an expanding margin profile and emerging FCF story warrants a multiple in-line with peers and its own historical average.”

Looking At The Numbers

Storage: Storage was reported at 53 percent, a 25-percent increase year over year. With SSD on track to represent about 25 percent of storage for Q2, Schafer sees the segment growing in low-single digits due to a solid pricing environment.

Networking: Marvell’s networking grew to 25 percent (up 5 percent year over year) based on “double-digit 2.5–10G switching/PHY growth.” Schafer stated, “Marvell’s networking business could grow in F2H as a multitude of new products ramp.”

Wireless: Wireless also increased 3 percent year over year, and new guidance sees it growing another 30 percent quarter over quarter based on “seasonal gaming builds.”

Additionally, Marvell has finally started focus on expanding their market share in both the auto and connected home industries. Specifically, Schafer noted that “Marvell secured multiple auto design wins in Q1 that are expected to generate revenue beginning in fiscal year 2019, an important milestone as it looks to grow its auto business.”

Schafer Buys Marvell’s Turnaround Story

Currently, Marvell trades at a discount to its peers, and Schafer believes management is moving their business in the right direction. Specifically, he concluded his theses saying: “We view positive developments to the turnaround story. We believe the company has the ability to continue expanding operating margins and FCF generation now that the top-line is stabilized and restructuring efforts take root. We see a favorable risk/reward set-up with shares trading at a discount to peers, pristine balance sheet, and self-help driven EPS growth.

Marvell was trading up 2.92 percent at $17.43 at time of publication.

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