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What’s Really Driving Optimism among Marvell’s Shareholders?

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Marvell’s EPS attracts shareholders

Marvell Technology Group’s (MRVL) major strength is its zero debt, which removes the burden of interest payments, leaving a major portion of its profits for shareholders. The company has thus managed to improve its non-GAAP (generally accepted accounting principles) EPS (earnings per share) significantly over the past two quarters, and this has increased optimism among Marvell’s shareholders.

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Marvell’s EPS trend

In fiscal 2Q17, Marvell’s non-GAAP EPS rose to $0.18, which was 50% higher than its guided EPS of $0.12. This impact doubled in fiscal 3Q17 as the company reported an EPS of $0.20, which is 100% higher than its guided EPS of $0.10.

During the same quarter, Cypress Semiconductor (CY) reported non-GAAP EPS of $0.15, whereas Broadcom (AVGO) reported EPS of $2.89. Broadcom has a high EPS due to its large size. It earns quarterly revenue of $3.8 billion, as compared to Marvell’s quarterly revenue of $654 million.

Cypress, which earns quarterly revenue of $530 million, reported lower EPS than Marvell, as the former has huge leverage.

EPS guidance

For fiscal 4Q17, Marvell expects to report EPS of $0.19 at the midpoint, even though its margins are improving and it is reducing its outstanding shares through a share repurchase program. Even though its margins are likely to improve, the company’s net income is likely to decline in dollar terms due to its significant fall in revenues.

For fiscal 2017, Marvell expects to report EPS between $0.18 and $0.33. This positive growth momentum has made some analysts bullish about Marvell. Pitzer expects the company’s new management to boost the company’s annual EPS to $1.15 by fiscal 2018.

An improvement in profits would increase the company’s cash flows, and with no debt, it would leave all the profits available for use. The company intends to use these cash flows to give returns to shareholders.

Now let’s look at Marvell’s balance sheet.

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