Cowen Names Marvell A 'Best Idea' For 2018

Marvell Technology Group Ltd. MRVL is one of Cowen's "best ideas" for 2018, with organic growth and a highly synergistic deal according it $2-a-share earnings power, according to the research firm. 

The Analyst

Cowen analyst Karl Ackerman has an Outperform rating and $29 price target for shares of Marvell Technology. Even after the strong rally found in the semiconductor space, the analyst sees Marvell as one of the few stocks with an upside potential exceeding 30 percent. 

The Thesis

The path to $1.60 organic earnings per share — 25 cents above the consensus — in calendar 2019 is clear, analyst Ackerman said in a Monday morning note.

The analyst projects 5 percent annual revenues and a 400 basis-point expansion in operating margin, stemming from new product ramps in storage and networking, roll-off of lower margin legacy business in networking and cost optimization across the supply chain.

See also: 8 Semiconductor Stocks That Could Be Acquisition Targets

Cowen said its pro forma estimates may prove conservative, given the likelihood of Cavium/Marvell generating $900 million per year in free cash flow and the ability to generate about $500 million in real estate sales.

Marvell could use the proceeds to pay off debt or buy back shares, Ackerman said. 

"With $2 in EPS power very much in sight on a combination of MRVL's own organic initiatives coupled with a highly strategic asset that bolsters MRVL's No. 2 position in the data center, MRVL is clearly becoming a significant outlier that can no longer be ignored." 

The Price Action

Marvell Technology shares have been up nearly 71 percent in the year-to-date-period, with the slope of the rally steepening since the Street began speculating about the Cavium deal.

At the time of writing, the shares were down 1.51 percent at $23.43.

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