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Marvell Technology Stock: What to watch for future earnings (NASDAQ:MRVL)

Marvell Technology Group headquarters in Silicon Valley

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I am a Marvell Technology (NASDAQ: MRVL) Stocks. In my previous update to MRVL written on December 6, 2021, I reviewed the company’s financial results for the third quarter of the fiscal year. 2022 (YE January).

The focus of this latest article is a preview of Marvell Technology’s upcoming second quarter 2023 financial results announcement. Based on an assessment of key metrics that I am closely monitoring, including earnings mix, gross margin and return on equity, we expect MRVL to generate better-than-expected earnings in the second quarter of 2023. 2020 and I think the magnitude of the MRVL valuation downgrade is too harsh. As such, we are raising our investment rating on Marvell Technology from Hold to Buy in hopes that the stock will revalue following the second quarter’s EPS gains.

MRVL upcoming earnings report dates

In a press release dated July 28, 2022, Marvell Technology announced that it will disclose its financial results for the second quarter of 2023 on Thursday, August 25, 2022.

Analysts are bullish on Marvel’s second-quarter results

In my opinion, Wall Street is bullish on MRVL’s performance in the second quarter of fiscal year 2023, and this is backed up by a number of key observations.

First, market consensus financial forecasts suggest Marvell Technology expects earnings of $1,517 million and non-GAAP adjusted earnings per share or EPS of $0.56 in the second quarter of 2023. I’m here. S&P Capital IQ.

This translates to MRVL’s year-over-year revenue growth of +41.0% in the second quarter of the current fiscal year, which is in line with the company’s year-over-year earnings growth in the second quarter of fiscal 2022. Not much less than +47.9%. More importantly, Wall Street analysts say Marvell Technology delivered a net gain of +66.2% year-over-year, even faster than its normalized EPS growth of +61.9% in the second quarter of fiscal year 2022. I’m looking at it. Additionally, Marvell Technology’s Q2 FY2023 consensus EPS of $0.56 translates into a decent QoQ increase of +7.7%.

Second, the majority of sell-side analysts covering MRVL stocks have opted to upgrade their financial forecasts for their respective stocks over the past two months.

Specifically, 21 out of 32 Wall Street analysts raised their top-line forecasts for Marvel Technology in the past three months, while 21 decided to lower their earnings forecasts for MRVL during the same period. There was only one person on the list. Similarly, 19 sell-side analysts decided to increase her EPS estimate for her MRVL over the past three months.

Third, the share of sell-side analysts who are bullish on Marvell Technology stocks has not changed recently.

Analysts naturally lower their investment ratings on certain stocks if they believe they are not profitable, but that was not the case with Marvell Technology.based on S&P Capital IQ Since the end of June 2022, Wall Street analysts’ Strong Buy (20) and Buy (7) ratings for the stock have remained unchanged, according to the data.

In summary, the consensus view is that Marvell Technology’s Q2 2023 financial performance is pretty good.

My prediction is to outperform MRVL earnings

We believe Marvell Technology will be able to do better than the market expects based on three key factors in the second quarter of 2023.

First, MRVL’s earnings mix is ​​strong, which should allow the company to maintain strong top-line growth in the very near term.

Consumer end markets accounted for only 12% of Marvell Technology’s revenues in the first quarter of fiscal 2023. Relatively low exposure to consumer end markets is positive for MRVL. Because this end market should be the worst affected in a weak economic environment. At the company’s first quarter 2023 earnings call on May 26, 2022, Marvell Technology emphasized that “from our perspective, non-consumer demand continues to be very strong.” MRVL also added on its recent quarterly investor conference call that “the data center in particular will have a great first half (first half of 2023).” Specifically, the data center end market was Marvell’s largest revenue contributor, accounting for 44% of revenue in Q1 FY23.

Second, Marvell Technology has proven its ability to offset cost pressures from inflation, indicating that the company’s profit margins may exceed market expectations.

According to financial data obtained from MRVL, MRVL increased its gross margin on a QoQ basis quarter by quarter from FY2021 Q4 to FY2023 Q1. S&P Capital IQThis could have been caused by a number of factors including higher prices, operating leverage and sales mix. The company expects a gross margin of 65.25% for the second quarter of fiscal 2023 (the midpoint of its guidance), while the sell-side consensus second quarter gross margin forecast is his 65.29%. I expect Marvell to continue to expand gross margins (MRVL’s gross margin for Q1 2023 was 65.5% for him) and this is consistent with management guidance and market expectations. will surpass

Third, higher-than-expected levels of share repurchases helped offset the dilutive effect of stock-based compensation and likely supported Marvell Technology’s earnings growth in the second quarter of 2023.

MRVL spent $15 million in stock repurchases in the first quarter of 2023 and said on its first quarter earnings call that it had “expected to spend an additional $50 million in stock through its 10b-5 program in the first three weeks of the second quarter. has been repurchased.” This suggests that Marvell Technology will accelerate the pace of its share buybacks in the second quarter of this fiscal year.

Mismatch between stock price performance and earnings growth

There is a mismatch between Marvel’s earnings growth and stock performance.

Marvell Technology’s stock is down -40.6% year-to-date in 2022, while the S&P 500 is down a much more modest -11.8% over the period. In contrast, MRVL delivered very strong year-on-year normalized EPS growth of over +70% over the past three quarters (Q3 FY2022, Q4 FY2022 and Q1 FY2023). S&P Capital IQ Historical financial data.

MRVL’s consensus-forward next 12-month normalized P/E has dropped significantly from 42.9x as of 3 January 2022 to 21.6x as of 19 August 2022. S&P Capital IQdespite the company maintaining strong earnings growth in recent quarters. Improving earnings in the second quarter of fiscal 2023 will be the catalyst for the revaluation necessary for a positive revaluation of the MRVL valuation. think.

in conclusion

I rate Marvell Technology as a buy. MRVL’s forward P/E valuation multiple compression seems overdone, and Marvell’s stock appears to be rising in tandem with earnings growth after its Q2 earnings release.