Marvell Technology Group, Inc. (MRVL) shares dropped in the after hours session almost as soon as it released earnings, but this could be a potential buying opportunity. Investors often make knee-jerk decisions when they don't like the headline number but given enough time to digest the earnings and conference call, investors can often quickly take a more favorable view. For example, Applied Materials (AMAT) announced earnings just days ago, and the stock dropped over concerns that forward guidance was weak. However, the stock quickly recovered and it now trades for about $12 per share, after dipping to nearly $11 per share on the earnings release. Marvell could be poised for a similar recovery. Here are five reasons to consider buying Marvell shares on any dips:
- Marvell designs and makes specialized chips for use in a variety of electronic products including computers and mobile devices. The company recently reported earnings and guidance that disappointed some investors. For the second quarter, it earned $93.1 million, or 16 cents a share, which was below the $192.4 million, or 31 cents per share, it earned last year. In terms of guidance, the company expects to earn about 22 to 26 cents per share in the quarter that ends in October, which is below the 32 cents estimates set by analysts. Part of the problem is that Marvell supplies chips to companies like Research in Motion (RIMM) and that company is seeing revenue fall. However, over time, Marvell should be able to find other companies to supply and it could see improvements if Research in Motion experiences higher sales when it introduces a new operating system in the coming months.
- Marvell has a fortress-like balance sheet with about $2.2 billion in cash and no long-term debt. Balance sheet strength is a very important factor to consider, especially during periods of economic uncertainty.
- Marvell shares had been trading around $15 to $16 per share back in April and May, but as the market correction took hold, the stock dropped to just about $10.50 in mid-July, and has since started to trend higher. Even with the stock down about $1.18 per share in after-hours trading to $11, the recent uptrend could still be in place.
- Marvell shares offer a dividend that yields about 2%. Many tech stocks don't offer a dividend, and this should help limit the downside. Furthermore, the payout ratio is just around 25%, so the dividend looks safe and it has room to rise in the future.
- Analysts at Jefferies recently stated that the weakness in Marvell is a buying opportunity, and they set a $15 price target for the shares. That presents upside of about 40%, from current levels.
Key Data Points For Marvell Technology
- Current Share Price: $12.28 (about $11 in after-hours trading)
- 52-Week Range: $10.27 to $16.86
- Dividend: 24 cents per share, which yields 2%
- Fiscal Year 2013 Earnings Estimate: $1.13 per share
- Fiscal Year 2014 Earnings Estimate: $1.33 per share
- P/E Ratio: about 9 times earnings
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MRVL over the next 72 hours.