GOLDMAN SACHS COMMENTS ON MARVEL, BUY, TGT $23
What's changed 4/5/07
We met with management and reviewed investors’ concerns, including options investigation and business fundamentals. (1) We believe the options investigation is progressing with auditor and accountant report basically completed, but pending independent committee’s report and the board’s decision. We do not have an edge on the timing of completion or conclusions, but are hopeful the investigation will be completed over the next few weeks and management will be intact. (2) We believe 1QFY (Apr) is tracking to $640-650mn (+2.9% to +4.5% qoq) guidance, which we believe assumed some conservativism given Marvell’s recent challenges and mixed end market trends; we are comfortable with our $643.5mn (+3.5% qoq)/EPS (operating) -$0.03 (including ESOs), $0.07 (excluding ESOs), vs street’s $647.1mn (+4.0% qoq)/EPS $0.09 (excluding ESOs).
Implications
We rate Marvell at Buy as we expect several positive drivers to ramp in the coming quarters, which will help re-establish positive earnings and investor momentum. MRVL is -12% YTD vs our semis coverage median of +4%. We expect near-term trading will remain choppy given tepid fundamentals, uncertainty on the options investigation, and limited visibility into cost improvement of the acquired business. Hence, we believe investors should build long-term positions with tight stop-loss or half positions now with full positions filled as overhangs such as cyclical choppiness and options investigation are resolved.
Valuation
Our $23 12-month price target assumes $0.45 normalized EPS and 1.5x target PEG as we expect Marvell will maintain outsized growth.
Key risks
Primary risks to our view on Marvell are execution on recent acquisitions, market trends and ability to gain share in target markets, and uncertainty related to the ongoing options investigation and on-going listing.
