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Marvell Stock Soars on Upbeat Earnings, Higher Outlook

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Marvell Technology (NASDAQ:MRVL) stock gained around 9.87% in after-hours trading on Wednesday following its fourth-quarter earnings results. Marvell posted better-than-expected results in the fourth quarter of fiscal 2020 (ending February 1), despite coronavirus fears. The company also provided a higher-than-expected revenue outlook for the upcoming quarter. The outlook signals that the company is confident about overcoming the coronavirus outbreak.

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Meanwhile, Marvell stock gained 6.06% on Tuesday and closed the trading day at $22.59. At Tuesday’s closing price, the company’s market capitalization is around $15.2 billion. The stock is trading 21.7% lower than its 52-week high of $28.86 and trading 24.9% higher than its 52-week low of $18.08. Marvell stock has fallen around 14.9% on a year-to-date basis.

Marvell’s Q4 earnings

Marvell’s adjusted EPS of $0.17 was higher than analysts’ estimates of $0.16 per share in the fourth quarter. The earnings were also within the company’s expected range of $0.15–$0.19 per share. However, the fourth-quarter earnings fell by 32% YoY (year-over-year) from $0.25 due to lower the top line and margin contraction. The fourth-quarter earnings were in line with its EPS $0.17 the previous quarter.

The adjusted gross margin fell by 220 basis points in the quarter, while the adjusted operating margin fell by 640 basis points. In the fourth quarter, the adjusted gross and operating margins were 62.3% and 19.6%.

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Strong Q4 revenues

Marvell’s revenues reached $717.7 million in the fourth quarter, which beat analysts’ estimates of $713 million. In the fourth quarter, the company revenues also improved from the previous quarter. However, the revenues lagged Marvell’s guidance of $750 million (plus or minus 3%) in the fourth quarter. Meanwhile, the revenues fell by 3.6% YoY in the quarter. Marvell’s revenues declined YoY for the third consecutive quarter. Earlier, the downtrend in the chip cycle and a trading ban on Huawei disrupted the company’s sales. Also, Marvell is concerned that the coronavirus epidemic could hurt its sales.

The company’s storage and networking businesses improved by 3% and 14%, respectively, from the previous quarter. The revenues from “other products” declined by 1% from the third quarter.

Marvell is also progressing in 5G deployment. During the fourth quarter, the company started to ramp up its first generation of 5G processors with Samsung. Marvell’s CEO expanded the company’s long-term relationship with Samsung on the radio access network.

The company also announced an expanded relationship with Nokia to develop 5G silicon solutions.

Acquisitions and divestitures

In December 2019, Marvell completed the divestment of its Wi-Fi Connectivity Business to NXP Semiconductor (NASDAQ:NXPI) for $1.7 billion in cash proceeds. NXP planned to buy Marvell’s wireless connectivity business in May.

In November 2019, Marvell completed the acquisition of Avera Semiconductor, which is GlobalFoundries’ ASIC (Application Specific Integrated Circuit) business. The addition of Avera will likely add approximately $100 million in annualized revenue in fiscal 2021, as stated in the third-quarter earnings call. Marvell’s acquisition of Aquantia, which is a multi-gig ethernet company, should add approximately $100 million in annualized revenue in fiscal 2021.

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Guidance for the first quarter of fiscal 2021

In the first quarter of fiscal 2020, Marvell expects coronavirus fears to dent its revenues. Marvell CEO Matthew Murphy stated in the press release that the “guidance for the first quarter of fiscal 2021 reflects the reduction of approximately 5 percent of revenue to account for coronavirus impacts.” The company has also taken into account the “US Government’s export restriction on certain Chinese customers” in the first quarter.

Now, Marvell expects its first-quarter revenues to be $680 million, plus or minus 5%. However, analysts expected lower revenues of $676.9 million for the first quarter—up by 2.18% YoY. For fiscal 2021, analysts expect the revenues to grow by 12.7% YoY. Analysts predict the revenues to improve by 16.6 % in fiscal 2022.

The company also expects an adjusted EPS of $0.11–$0.17 for the first quarter. Meanwhile, analysts expect $0.13 per share in the upcoming quarter—a decline of 16.9% YoY. Wall Street analysts expect the company’s fiscal 2021 earnings to improve by 39.1% and grow by 56.6% in fiscal 2022, ending in January.

The company also expects the non-GAAP gross margin to be 63% in the first quarter. I think that the company’s gross margin growth could be driven by the recent additions of Aquantia and Avera into the Marvell supply chain.

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Analysts’ recommendations on Marvell stock

Among the 27 analysts that cover Marvell stock, 22 recommend a “buy,” four recommend a “hold,” and one recommends a “sell.” Analysts expect a 12-month target price of $29.35, which is at a premium of 19.1% to the current stock price.

My take on Marvell stock

I think that Marvell is improving its revenues due to its network and storage business. The company is also indulging in acquisitions and making divestitures to expand its business. Marvell’s 5G expansion is encouraging. Looking at analysts’ growth projections, I think that the negative effect of coronavirus on the stock would be in the short term.

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