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Marvell (MRVL) to Report Q2 Earnings: A Beat in the Cards?

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Marvell Technology Group Ltd. (MRVL - Free Report) is set to report second-quarter fiscal 2019 earnings on Sep 6.

Marvell’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 2.02%. In the last reported quarter, the company delivered a positive earnings surprise of 0.15%.

For the upcoming quarterly results, the company expects revenues in the range $940-$960 million and earnings per share between 35 cents and 39 cents. The Zacks Consensus Estimate for revenues and earnings is pegged at $615.51 million and 34 cents, indicating a year-over-year increase of 1.78% and 13.33%, respectively.
 

Marvell Technology Group Ltd. Price and EPS Surprise

 

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Marvell is benefiting from growing demand for SSD products. This is evident from the company’s fiscal 2018 revenues from the storage end market, which accounted for more than 50% of total revenues.

Storage revenues were positively impacted by strong demand from SSD customers along with elevated demand from enterprise and data-center operators. This trend is expected to continue into the to-be-reported quarter.

Moreover, management is optimistic about the first-ever NVMe SSD chipset meant to address the requirements of new-age cloud and enterprise data center applications. The Zacks Consensus Estimate for revenues from Marvell’s Storage Products business is pegged at $326 million, indicating an increase of 4.5% from the year-ago quarter.

Marvell’s core switch, PHY and processor solutions are expected to continue its uptrend in the to-be-reported quarter. The company’s automotive Ethernet business is also gaining traction.

Moreover, improving product mix and other margin expansion initiatives are tailwinds. Management expects the gross margin to reach 63-63% in the quarter. The company also expects to reach non-GAAP operating margin of 30% in the fiscal second quarter, six quarters earlier than anticipated initially. This makes us optimistic about the upcoming quarterly results.

However, the company expects to incur a loss of about $7 million in ZTE networking revenues owing to the trade restrictions imposed by the U.S. government. This is expected to partially offset the year-over-year revenue growth expected by the company.

Moreover, Marvell also expects Connectivity revenues to fall, as it is not well-versed with the consumer gaming ramp, which started in the quarter. The Zacks Consensus Estimate for revenues from this segment of the business is pegged at $84 million, indicating a fall of 15.15% from the year-ago quarter.

What the Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Marvell currently carries a Zacks Rank #3, with an Earnings ESP of +0.15%.

Other Stocks With Favorable Combination

Here are few other stocks, which, per our model, have the right combination of elements to post an earnings beat this quarter:

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION (SAIC - Free Report) has an Earnings ESP of +1.70% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Jabil, Inc. has an Earnings ESP of +3.82% and carries a Zacks Rank of 3.

Palo Alto Networks, Inc. (PANW - Free Report) has an Earnings ESP of +0.40% and carries a Zacks Rank of 3.

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