Argus: 'Strong' End Markets, Cavium Acquisition Make Marvell Technology A Buy

Marvell Technology Group Ltd. MRVL is in a strong position to show investors top-line growth after several years of sales declines, according to Wall Street's newest bull analyst.

The Analyst

Argus' Jim Kelleher initiated coverage of Marvell Technology Group's stock with a Buy rating and $28 price target.

The Thesis

The bullish case for Marvell Technology's stock is based partly on the fact that the company's end markets are experiencing "strong" growth, Kelleher said in the initiation note. (See the analyst's track record here.) 

A digital transformation is taking place across PCs and smartphones that benefits Marvell's semiconductor-based solutions, Kelleher said. Segments like cloud, big data, social mobile, internet of things, robotics and artificial intelligence are similarly evolving, which creates incremental demand for Marvell's products.

Marvell's $6-billion acquisition of rival chipmaker Cavium Inc CAVM adds a leading server and storage connectivity business to Marvell's already existing storage platform, the analyst said. 

"It would also add complementary assets in networking, DCI, connectivity and other areas with minimal overlaps in products, markets and customers," Kelleher said of the Cavium tie-up.

The acquisition would double Marvell's total addressable market and should prove to be immediately accretive to its non-GAAP EPS, the analyst said. 

Marvell's expectations for stabilization in revenue, top-line growth and expanding margins should result in superior EPS growth potential versus its peers, Kelleher said. The stock "appears attractively valued" at current levels, he said. 

Price Action

Marvell shares were up 0.62 percent at $23.72 Wednesday afternoon. 

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