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Marvell Looks Overvalued, So Citi Keeps Sell Rating On Stock

Although there’s a rebound in the storage business, shares of Marvell Technology Group Ltd. MRVL appear overvalued following the recent run-up, Citi’s Atif Malik said in a report. He maintained a Sell rating on the company, while raising the price target from $8.65 to $10.50.

Marvell reported its April quarter revenue and adj. EPS at $540.8M and $0.01, missing the Citi estimates of $565M and $0.09 and Street’s $575M and $0.07, respectively. The company guided to July quarter revenue and adj. EPS at $630M and $0.11, both ahead of the Street expectations of $587M and $0.09, respectively.

Shares Up, But Continued Concerns

Marvell’s shares climbed 7 percent after the company announced its July quarter revenue guidance significantly ahead of Street expectations on HDD inventory restocking. Analyst Atif Malik mentioned that Marvell’s operating margins in the April quarter and in the July quarter guide were lower than expected, despite the company restructuring its mobile business and generating better-than-expected gross margins.

Malik stated that there were three reasons for the Sell rating:

  1. The shares already seem to reflect a “significant recovery in improved profitability on mobile exit and restructuring.”
  2. Concerns over the long-term core storage business outlook in a declining HDD market, with Marvell losing share in both SSD and HDDs
  3. Since the ex-CEO continues to be on the company board, investors may not “give new management team a clean slate.”

The analyst believes Marvell would be “an interesting acquisition target on FCF generation,” with potential buyers as private equity, US smartphone exposed semiconductor peers, or a Chinese company, provided the new CEO is able to turn around the core storage business.

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