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Analyst Blog

Marvell Technology Group Ltd. (MRVL - Snapshot Report) is set to report second quarter 2014 results on Aug 22, 2013. Last quarter, it posted an 85.7% positive surprise with a trailing four-quarter average positive surprise of 28.9%. Let’s see how things are shaping up for this quarter.

Growth Factors this Past Quarter

Marvell’ first quarter revenues dropped 7.8% year over year but were above the Zacks Consensus Estimate of $722.0 million. Management blamed ongoing macro uncertainty, a lackluster PC market and weakness in Mobile and Wireless end markets for the revenue decline. However, product demand was better than expected with share gains in Storage and Networking end markets.

Favorable product mix led to the gross margin expansion. However, higher opex dragged down operating margin.

Earnings Whispers?

Earlier this month, Marvell secured two important deals, which reflected the popularity of its ARMADA suite.

China-based PC-maker Lenovo, now the world’s largest,  ahead of Hewlett-Packard Co., selected Marvell’s ARMADA 1500 Series SoC platform to power its latest 60-inch flagship Smart TV models, the K82 and K72.

Marvell continues to gain traction in its unified cellular platform with a major win from China Mobile. China Mobile is deploying Marvell’s Armada PXA988 platform for its smartphone.

We believe that the deal wins will help Marvell to meet its second quarter expectations. But the lackluster PC market will continue to cap revenue growth prospects.

The Zacks Consensus Estimate for the second quarter stands at 13 cents while that for fiscal 2014 stands at 58 cents. Estimate revisions have been minimal in the last 60 days, with only one downward estimate revision for fiscal 2014.

The lack of upward movement in estimates signals that the analysts are awaiting a good visibility to be positive on the stock. The stock carries a Zacks Rank #3 (Hold).

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

We expect the following stocks to beat earnings estimates in the upcoming quarters given positive Expected Surprise Prediction or ESP (Read:  Zacks Earnings ESP: A Better Method) and a favorable Zacks Rank.

Donnelley , with Earnings ESP of +2.5% and Zacks Rank #1 (Strong Buy)

Hewlett-Packard Co. (HPQ - Analyst Report), with Earnings ESP of +2.3% and Zacks Rank #2 (Buy)

Portfolio Recovery Associates Inc. (PRAA - Analyst Report), with Earnings ESP of +2.3% and Zacks Rank #2 (Buy)

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