Shares of Marvell Technology Group Ltd. MRVL have been clocking solid returns over the last year and have gained approximately 58.40%, outperforming the Zacks categorized Semiconductor-Communications industry's return of 52.50%.
Marvell reported its fourth-quarter fiscal 2017 (ended Jan 28, 2017) numbers on Mar 2, 2017. For some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar.
So, the period following earnings releases is often marked by high market activity. Moreover, indicators of a stock’s bullish run include a rise in its share price and a continued uptrend in estimates.
The company reported adjusted earnings (including stock-based compensation but excluding amortization, acquisition, restructuring, legal related expenses and other one-time items) of 18 cents per share, comfortably beating the Zacks Consensus Estimate of 13 cents. Also, reported earnings were better than the year-ago figure of 5 cents.
However, Marvell’s revenues fell 5.2% year over year to $571.4 million despite beating the Zacks Consensus Estimate of $571 million by a nominal margin.
The company provided an encouraging first-quarter guidance. Marvell expects first-quarter fiscal 2018 revenues at $570 million (+/- 2%). The Zacks Consensus Estimate is pegged at $570 million.
The company expects non-GAAP earnings per share in the band of 19 cents to 23 cents, while the Zacks Consensus Estimate is pegged at 16 cents.
An encouraging top-line and bottom-line guidance for the third quarter, above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s prospects.
Upward Estimate Revisions
In the last 30 days, the Zacks Consensus Estimate for the current quarter and fiscal 2018 witnessed upward revisions. For the current quarter, the Zacks Consensus Estimate is pegged at 16 cents, up 5 cents from earnings of 11 cents projected 30 days ago. Similarly, the Zacks Consensus Estimate for fiscal 2018 is currently pegged at 81 cents compared with 68 cents projected 30 days ago.
Other Driving Factors
We believe that the strong demand for Marvell’s 4G LTE products could be a growth driver. This will be supported by growth from the company’s wide range of newly-launched Internet of Things (IoT) solutions.
Going forward, the company’s recent restructuring initiative will help Marvell improve cloud infrastructure and applications, which are expected to drive the company’s top line. The latest buyback scheme also reflects the company’s sound financial position and favorable prospects.
Looking at these positives, we consider that Marvell is one such technology stock that deserves a place in investors’ portfolio.
Marvell also delivered positive earnings surprises in three out of the last four quarters with an average beat of 107.26%.
Moreover, from a valuation perspective, the stock looks attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. Marvell currently trades at a forward P/E of 19.62x compared with the industry group average of 33.70x.
Hence, there is still much momentum left in this Zacks Rank #2 (Buy) stock, which is quite evident from its long-term earnings growth rate of 14.7%.
The stock is in the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock will yield strong returns in the short term.
Other Stocks to Consider
Other stocks worth considering in the broader technology sector are Seagate Technology plc STX, Western Digital Corp. WDC and Micron Technology, Inc. MU all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Seagate, Western Digital and Micron have a long-tern expected earnings growth rate of 8.17%, 12.11% and 10%, respectively.
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