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Marvell (MRVL) Up 1.1% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Marvell Technology Group Ltd. (MRVL - Free Report) . Shares have added about 1.1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is MRVL due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Marvell Q1 Earnings Beat on Core Business Growth

Marvell Technology reported impressive first-quarter fiscal 2019 results, wherein the top- and the bottom-line figures came ahead of the Zacks Consensus Estimate. Additionally, both the metrics recorded year-over-year improvement. Growth in the company’s core business and improved operational efficiency led to the better-than-expected results.

On a per share basis, non-GAAP earnings came in at 32 cents, up 33.3% from the year-earlier quarter’s earnings of 24 cents. Quarterly non-GAAP earnings also came ahead of the mid-point of the guided range of 29-33 cents (mid-point 31 cents) and beat the Zacks Consensus Estimate by a penny.

Quarter Details

Marvell’s revenues increased 5.6% year over year to $605 million and surpassed the Zacks Consensus Estimate of $600 million. Moreover, reported revenues came ahead of the mid-point of the guided range of $585-$615 million (mid-point $600 million).

In the end markets, storage revenues (52.4% of total revenues) grew 4.4% year over year but declined 2% sequentially. The year-over-year growth was driven by surging demand at the SSD (Solid-State Drive) segments, along with elevated demand from enterprise and data-center operators.

Management is optimistic about the first-ever NVMe SSD chipset meant to address the requirements of new-age cloud and enterprise data center applications. Notably, this chipset is aligned with the recently announced project of Microsoft called Denali.

The networking business (25.4%) increased 6.2% year over year but decreased 1% sequentially. The year-over-year increase came on the back of robust adoption of new products. The switch and PHY solutions for the enterprise campus market also saw impressive adoption.

The company’s automotive ethernet business is also gaining traction. NVIDIA recently selected Marvell’s automotive ethernet switch for its Pegasus platform that is used for handling level V driverless vehicles.

Revenues from connectivity (15%) climbed 18.9% year over year and 5% sequentially. The increase was primarily attributed to higher demand for the company’s solutions across all the markets it caters to, with performance client and enterprise access taking center stage.

Other product (7.2%) revenues during the quarter declined 10% on a year-over-year basis and 13% from the previous quarter.

Marvell’s non-GAAP gross profit came in at $377.6 million, up 8.8% on a year-over-year basis. Gross margin also increased from 60.6% to 62.5% on a year-over-year basis, primarily buoyed by a favorable product mix and higher revenue base.

Non-GAAP operating expenses decreased 3.5% year over year to $211.8 million. As a percentage of revenues, operating expenses contracted 330 basis points to 35%. Marvell’s non-GAAP operating margin came in at 27.4% compared with 22.2% reported in the year-ago quarter. The results were positively influenced by higher gross margin and lower operating expenses as a percentage of revenues.

The company reported non-GAAP net income of approximately $164.6 million during the quarter compared with $125.5 million reported in the prior-year quarter.

Balance Sheet

Marvell exited the quarter with cash, cash equivalents and short-term investments of $1.879 billion compared with $1.841 billion in the previous quarter. The company carries no long-term debt. Cash from operating activities during the quarter amounted to $128.8 million.

During the quarter, Marvell paid dividend of around $30 million to its shareholders.

Outlook

Marvell projects second-quarter fiscal 2019 revenues in the range of $600-$630 million (mid-point $615 million), excluding around $7 million of revenues from a Chinese original equipment manufacturer pertaining to trade restrictions by the U.S. government.

Management expects GAAP and non-GAAP gross margin to be approximately 63% and 64%, respectively. GAAP operating expenses are expected to be between $260 million and $270 million, while non-GAAP operating expenses are estimated to be approximately $210 million.

The company anticipates non-GAAP earnings per share in the band of 32-36 cents (mid-point 34 cents). On a GAAP basis, earnings are projected to be between 22 cents and 26 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.

VGM Scores

At this time, MRVL has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth and momentum investors than value investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise MRVL has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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