Analysts Fight Over Future of Marvell

Most other firms rating Marvell have it pegged at a Buy rating, and the consensus analyst price target is $16.24. Merrill Lynch gave Marvell an Underperform rating, but not without reason.

The firm’s top four concerns were:

• Mobile exit, or sale, looks unlikely since without mobile Marvell is only growing about 3% annually.
• Mobile presence conversely implies hyper-competition, with sales down every quarter since the first, including a -19% sequential loss in the fourth quarter.
• CMU litigation remains unresolved and limits buybacks.
• The fourth quarter was the second consecutive quarter of missing and lowering estimates.

As a result, Merrill Lynch lowered its earnings per share estimates for fiscal year 2016 to $1.05 and fiscal year 2017 to $1.08. The firm also lowered its price target to $13 from $14.

Merrill Lynch detailed what it disliked about Marvell in its report:

Winning consistently/profitability in mobile remains elusive for most mobile processor vendors since ARM/foundries control much of the intellectual property, in our view. Second, valuing Marvell ex cash remains risky given overhang from CMU litigation. Third, even ignoring CMU litigation and giving full credit for $4.86 per share in net cash, Marvell trades at 16x Calendar Year 15 price-to-earnings (PE) (ex-cash but including stock comp expense) or a 31% premium to peer Broadcom Corp. (NASDAQ: BRCM) at 13.3x even though Broadcom has 600bp higher profitability and 5x faster growth in its ex mobile networking/broadband segments.

Shares of Marvell were down 1.5% to $16.15 at midday in Friday’s trading. The stock has a consensus analyst price target of $16.24 and a 52-week trading range of $11.65 to $16.78.

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