Near-Term Headwinds Balanced By Consistent Execution For Marvell Technology

BMO Capital Markets said in a note Thursday that consistent execution at Marvell Technology Group Ltd. MRVL is balancing the near-term headwinds.

As such, the firm said it continues to rate the shares of Marvell Technology a Market Perform, reasoning that the shares are appropriately valued at current levels. The firm has a $16 price target for the shares.

In pre-market trading, shares of Marvell Technology were rallying 4.98 percent to $16.65.

Reviewing the company's fiscal second-quarter results, analyst Ambrish Srivastava said second-quarter revenues and earnings per share came in a touch above his estimates, helped by upside in storage and networking. Gross margin of 61.2 percent exceeded the 61 percent he targeted and was 600 basis point greater than a year ago.

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Srivastava noted that the fiscal-year third-quarter guidance, which calls for one percent sequential revenue growth to $610 million and earnings per share of 32 cents at the midpoint were below the consensus and his estimates.

Citing its cautious stance on the HDD market due to demand headwinds and factory transitions, the company guided to sequentially flat storage revenue, the firm noted. Additionally, the company said SSD was over 25 percent of storage, and notebook HDD revenues were below 15 percent of its total revenues or below 29 percent of the storage.

BMO Capital Markets also made note of the management view that its storage sales into notebook will grow year over year in 2018, with growth in SSD sales more than offsetting the decline in HDD sales.

The firm maintained its estimates for Marvell Technology largely unchanged, as it believes marginally lower revenues are likely to be offset by slightly higher gross margin and lower operating expenditure. As such, the firm nudged up its 2018 earnings per share estimate from $1.11 to $1.12 but lowered its 2018 estimate from $1.25 to $1.22.

By time of publication, shares of Marvell were up 7.69 percent at $17.08.

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