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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
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Marvell Tech reports earnings December 4

Michael Fowlkes

12/1/2018 12:52 PM

What's Happening

Marvell Technology (MRVL) reports third-quarter results December 4. The company will report its quarterly numbers after the market close with the consensus calling for earnings of $0.32 per share. During the same period last year the company earned $0.34 and the stock has lost 25% year to date.

Technical Analysis

MRVL was recently trading at $16.07 down $9.11 from its 12-month high and $1.38 above its 12-month low. InvestorsObserver’s Stock Score Report gives MRVL a 18 long-term technical score and a 29 short-term technical score. The stock has recent support above $14.5 and recent resistance below $17.5. Of the 15 analysts who cover the stock 13 rate it Strong Buy, 0 rate it Buy, 2 rate it Hold, 0 rate it Sell, and 0 rate it Strong Sell, MRVL gets a score of 48 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

MRVL has been losing value all year and the stock continues to search for support ahead of the upcoming report. Last quarter the company reported better than expected sales, but earnings fell short of estimates which spooked the market. MRVL was incredibly hot in 2016 and 2017, but analysts fear a slowdown in semiconductor demand, partially as a result of the ongoing trade war between the U.S. and China. MRVL has lost enough market share that it does appear to be undervalued at this point with a forward P/E of just 10.4. Earnings are expected to drop this quarter versus the same period last year, but for the full year profits are expected to rise 5.9% and analysts expect the company to grow earnings by 14.1% per annum over the next five years. If the company is able to keep pace with future estimates the growth is more than enough to drive the stock higher given its current valuation, but the company has to hit or exceed estimates or the market will be quick to drive shares lower. The street is not expecting a beat this quarter, with a whisper number of 30 cents for the quarter, which would be a two-penny loss. The good news is that the potential earnings miss has already been priced into the stock, so the stock can withstand a slight miss this quarter, and any positive surprise could result in a quick rally given how much negativity has been priced in. MRVL trades at $16.07 with an average price target of $26.27.

Stock Only Trade

If you're looking to establish a long stock position in MRVL consider buying the stock under $16. Sell if it falls below $15 or take profits if it gets to $19.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a 1/18/19 9/14 bull-put credit spread for a $0.30 credit. That's a potential 6.4% return (47% annualized*) and the stock would have to fall 14.7% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an 1/18/19 18/23 bear-call credit spread for a $0.30 credit. That's a potential 6.4% return (47% annualized*) and the stock would have to rise 13.8% to cause a problem.

Covered Call Trade

If you like the stock but wish to lower your cost basis on a new position, you may want to consider a 1/18/19 $16 covered call. Buy MRVL shares (typically 100 shares, scale as appropriate), while selling the 1/18/19 $16 call for a debit of $15.07, per share. The trade has a target assigned return of 6.2%, and a target annualized return of 46% (for comparison purposes only).



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