In this article, three technology stocks with recent upgrades from analysts will be analyzed fundamentally and technically, including Hewlett-Packard Company (HPQ), Marvell Technology Group Ltd. (MRVL), and Skyworks Solutions, Inc. (SWKS). Investing ideas will also be reviewed.
Hewlett-Packard Company is a global provider of products, technologies, software, solutions and services to individual consumers, SMBs and large enterprises. The firm faces increasingly fierce competition across its portfolio as it works through a protracted turnaround of its enterprise services business. HPQ jumped 12.28% and closed at $19.20 on February 22, 2013. HPQ had been trading in the range of $11.35-$27.09 in the past 52 weeks. HPQ has a beta of 1.09.
On February 22, 2013, UBS upgraded HPQ from Sell to Neutral and raised its price target from $12 to $19 following Q1 results. UBS commented,
We are upgrading HP to Neutral with a price target of $19 per share. Although the fundamentals remain mixed, the substantial improvement in free cash flow reduces the likelihood of significant downside to the stock. Free cash flow of $2.1bn in F1Q suggests the $5bn guidance for the year will likely prove low, so HP can achieve zero net debt in F2014 and then potentially return more cash to shareholders.
Analysts have an overall Neutral rating with an average price target of $18.29 (4.74% lower than the current trading price) for HPQ.
There are a few positive factors for HPQ:
- Lower P/B and P/S of 1.7 and 0.3 (vs. the industry average of 3.8 and 1.5)
- Lower Forward P/E of 5.2 (vs. the average of 14.0)
- HPQ generates an operating cash flow of $10.57B with a levered free cash flow of $8.77B
- HPQ offers an annual dividend yield of 2.75%
Technically, the MACD (12, 26, 9) turned to show a bullish sign on the last trading day. The momentum indicator, RSI (14), is picking up and indicating a strong buying momentum at 77.31, where above 70 is considered as overbought. HPQ broke and closed above its 200-day MA of $17.14 on the last trading day. HPQ is also trading above its 50-day MA of $15.95, as seen from the chart below.
Marvell Technology Group Ltd.
Marvell Technology Group Ltd. is a global, fabless semiconductor provider of application-specific standard products, including analog, mixed-signal, digital signal processing and embedded microprocessor integrated circuits. The company develops complex System-on-a-Chip devices. MRVL was up 4.44% and closed at $9.89 on February 22, 2013. MRVL had been trading in the range of $6.98-$16.31 in the past 52 weeks. MRVL has a beta of 1.21.
On February 22, 2013, Craig-Hallum upgraded MRVL from Hold to Buy with a price target of $12.00 (from $10.00). On February 5, 2013, RBC Capital upgraded MRVL from Sector Perform to Outperform with a price target of $13.00 (from $9.00). Analyst Doug Freedman said sentiment and structural challenges are positioned to alleviate/improve, thus driving multiple expansion. As quoted from the analyst's report, "FCF growth is under-appreciated even with the assumption of limited pick-up in Mobile & Wireless. Our thesis should be viewed as a call option on executing to its plan in wireless, which is not in our numbers. Raising multiple to 9.5x (vs. prior 8x and 2-year average of 10.3x), which reflects reduced risk to EPS given upcoming trough." The firm said at 12.1x 2014 consensus P/E versus peers at 14.0x, or 8.6x ex-cash, valuation is compelling. The firm cut April quarter EPS estimates from $0.15 to $0.13, reflecting HDD TAM reduction and softer end-markets, while raising FY13 EPS from $0.72 to $0.74 as it expects a stronger snap-back to revenues post-April Quarter.
Analysts have an overall Neutral rating and an average price target of $11.88 (20.1% upside potential) for MRVL.
There are a few positive factors for MRVL:
- Lower P/E of 16.3 (vs. the industry average of 22.4)
- Lower P/B and P/S of 1.1 and 1.8 (vs. the averages of 2.6 and 2.3)
- Lower Forward P/E of 13.4 (vs. the S&P 500's average of 14.0)
- MRVL has zero total debt and has a total cash of $2.02B
- MRVL generates an operating cash flow of $593.54M with a levered free cash flow of $373.02M
- MRVL offers an annual dividend yield of 2.43%
Technically, the MACD (12, 26, 9) is showing a bearish trend, but the MACD difference continued to converge. RSI (14) is picking up and indicating a bullish lean at 66.46. MRVL is currently trading above its 50-day MA of $8.72 and is approaching its 200-day MA of $9.97. If MRVL can break above its 200-day MA, the next resistance is $10.17, the R1 pivot point, followed by $11.10, the R2 pivot point, as seen from the chart below.
Skyworks Solutions Inc.
Skyworks Solutions, Inc. , an innovator of high reliability analog and mixed signal semiconductors, offers analog and mixed signal semiconductors. The offerings include custom linear products supporting automotive, broadband, cellular infrastructure, energy management, industrial, medical, military and cellular handset applications. SWKS was up 3.26% and closed at $21.85 on February 22, 2013. SWKS had been trading in the range of $19.21-$31.44 in the past 52 weeks. SWKS has a beta of 1.22.
On February 22, 2013, Stephens upgraded SWKS from Equal Weight to Overweight with a price target of $27.00 (from $24.00). On February 21, 2013, Raymond James downgraded SWKS from Strong Buy to Outperform. On February 19, 2013, Oppenheimer assumed coverage on SWKS with an Outperform rating and $32 price target. Oppenheimer commented,
SWKS is the most diversified among PA peers across OEMs and baseband partners. As such, we believe SWKS is best positioned to capitalize on the rising complexity of the RF front-end in next generation wireless devices. SWKS's system-level expertise affords material content expansion in WiFi (802.11ac), switching, antenna tuning and power management. We believe the company is well positioned to maintain/bolster its position in upcoming AAPL product refreshes and with management still committed to its mid-term margin targets, we remain bullish on shares.
Analysts have an overall Buy rating with an average price of $28.64 (31.1% upside potential) for SWKS.
There are a few positive factors for SWKS:
- Stronger revenue growth (3 year average) of 25.0 (vs. the industry average of 11.9)
- Lower P/E of 19.9 and P/B of 2.2 (vs. the industry averages of 23.8 and 2.6)
- Lower Forward P/E of 9.1 (vs. the S&P 500's average of 14.0)
- SWKS has zero total debt and has a total cash of $377.54M
- SWKS generates an operating cash flow of $355.69M with a levered free cash flow of $90.22M
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend and the MACD difference diverged. RSI (14) is picking up but still indicating a bearish lean at 43.46. SWKS is currently trading below its 200-day MA of $24.73 and 50-day MA of $21.89. The next support is $21.23, the S1 pivot point, followed by $18.52, the S2 pivot point, as seen from the chart below.
HPQ could be a good turn-around story; however, with the recent run-up and the overbought condition, long-term investors may want to establish the position after pull-back. SWKS still has 31.1% upside potential based on analysts' target. Investors can consider establishing the positions when the selling is eased or when the technical indicators turn to neutral or bullish. For MRVL, if it can breaks above its 200-day MA, investors can review the credit put options spread of May 18, 2013 $8/$9 put to gain upside credit premium or to acquire the stock at a discount.
Note: All prices are quoted from the closing of February 22, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.