Marvell Stock: Should You Buy on Trade Deal Hopes?



Analysts are optimistic about Marvell Technology (MRVL) stock, which has risen over 55% this year and over 36% since April. Yesterday, MRVL stock rose 0.83% to $26.88, closing 2.7% below its 52-week high of $27.64 and 87.4% above its 52-week low of $14.34. At Thursday’s closing price, Marvell had a market capitalization of $17.9 billion. Let’s look at what’s driving MRVL stock.

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Past performance driving Marvell stock

Macroeconomic weakness and reduced spending have impacted Marvell. In the second quarter, the company experienced weak demand from hardware giant Cisco Systems (CSCO). A central processing unit shortage also dented Marvell’s earnings.

The trade war has affected many chip companies’ sales. Semiconductor companies Marvell, Qualcomm (QCOM), Intel (INTC), and Micron (MU) have massive exposure to Chinese telecom giant Huawei. The trade ban on Huawei hurt Marvell’s shipments in the first quarter, prompting it to lower its revenue and earnings guidance for fiscal 2020‘s third quarter.

Despite the headwinds, Marvell has beaten its earnings and revenue estimates in the last two quarters. The company’s networking sales, which include Ethernet and Wi-Fi products, have been strong. And after 5G (fifth-generation) deployment, the company expects demand for its networking products to pick up even more. Marvell aims to produce its first 5G products by the end of this year, and to become a leading silicon supplier.

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Trade deal optimism

We’re optimistic that the US-China trade war will be resolved soon. CNBC reports, citing Reuters, that a trade deal is expected this month. Last month, the countries reached phase one of a trade deal, and yesterday, they agreed to cancel their imposed tariffs, according to CNBC. The trade deal hopes could boost Marvell stock.

Marvell’s third-quarter expectations

In the third quarter, Marvell expects revenue of $660 million (plus or minus 3%), and adjusted EPS of $0.15–$0.19. Analysts, however, expect its revenue to fall 21.9% YoY (year-over-year) to $664.5 million, and its EPS to fall 47.2% YoY to $0.17. They forecast Marvell’s revenue and EPS falling 6.25% and 40.2% YoY, respectively, in fiscal 2020, and rising 15.5% and 59.03% YoY in fiscal 2021.

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Analysts’ recommendations for Marvell stock

Of the 26 analysts covering Marvell stock, 22 suggest “buy,” and four suggest “hold.” Their average 12-month target price of $28.19 for MRVL implies a 4.9% premium based on its current stock price. Analysts’ median target is $29.

Recently, Wells Fargo analyst Gary Mobley upgraded MRVL’s price target to $32 from $25 and raised its rating to “outperform” from “market perform.” He is optimistic about 5G boosting the company’s sales.

Marvell’s technicals

Marvell stock’s 14-day relative strength index score is 65.79 and it is trading near its upper Bollinger Band of $27.04. These technicals imply it is approaching “overbought” territory. Yesterday, Marvell stock closed 8.5%, 8.8%, and 8.3% above its 20-, 50-, and 100-day moving averages of $24.77, $24.70, and $24.82, respectively. Based on these technicals, we think MRVL looks like a “hold.”

The abovementioned growth prospects, along with a potential trade truce, could benefit Marvell stock.


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