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Stocks  | September 3, 2019

The recent earnings season has peaked, but there are still some interesting reports coming out. Last week, the tech industry brought us two such pieces, as Dell and Marvell, a computer company and a semiconductor maker, reported their Q2 results. The reports prompted a wave of analyst attention for each company; we’ll take a look at what happened, and what the analysts have to say about both companies’ prospects.

Marvell Technology Group, Ltd. (MRVL)

Of the two, Marvell’s earnings report was more in line with expectations. The company, like many of its peers in the semiconductor industry, has been feeling pressure from the US-China trade tensions, and management acknowledged that by reducing forward sales guidance for Q3 report later this year. A look at the numbers, however, shows that Marvell is maintaining a solid position despite its China exposure.

EPS for Q2 came in at 16 cents per share, 6.6% above the estimate of 15 cents. It was the third time in the past three quarters that Marvell had beaten the forecast on EPS. The quarterly revenue of $656.57 million was 1.5% higher than the forecast $646.87 million, and marked the fourth straight quarter of revenue beats for Marvell.

Looking at Marvell after the earnings report, Merrill Lynch’s Vivek Arya acknowledges the sales pressure that the company is feeling due to the trade issues, but believes the company’s position in the rising 5G market will sustain profitability. He writes, “[5G] is likely a more realistic multi-year run-rate target, and could have upside (Samsung share gains, Nokia content expansion, plus new content/customer from Avera acquisition).” Arya adds that future growth predictions are “justified by the 30%+ EPS growth trajectory driven by 5G over the next few years.” His price target of $28 suggests an upside potential of 16% for MRVL.

Writing from Barclays, Blayne Curtis agrees that Marvell’s future is firmly in the new wireless technology: “5G is very much on track and even ahead of schedule with shipments to Samsung in Q3 and that Samsung is even committed to its next gen. chip… we still see this as a $1b+ opportunity.” Curtis sets a $30 price target on MRVL, implying a 25% upside potential.

Marvell’s consensus rating is a Strong Buy, based on 15 buys and 3 holds. Shares are selling for $23.97, and the average price target of $27.71 indicates analyst confidence in a 15% upside to the stock.

Dell Technologies, Inc. (DELL)

Dell showed a stronger performance in Q2. To put it simply, the company clobbered the forecasts. Reported revenues of $23.37 billion were 1.12% higher than the forecast $23.11 billion – and 1.8% higher than the year-ago quarter. These positive results were complemented by the EPS, which came in with a whopping 47% positive surprise, as $2.15 per share was way ahead of the $1.46 expected. Like Marvell, Dell has a recent history of earnings beats; it’s beaten revenue forecasts four quarters in a row, and EPS twice in the last year.

DELL shares responded to the blockbuster quarterly with a 10% gain in the August 30 trading session.

Amit Daryanani, 5-star analyst with Evercore ISI, was duly impressed by the earnings – he even titled his research note on the subject, “If There is an IT Slowdown, Michael [Michael Dell, CEO – ed.] Didn’t Get the Memo.”

In that note, Daryanani wrote, “DELL reported an impressive Jul-qtr especially in the context of their peers broadly missing and lowering expectations… [We see] upside driven by strong trends in PC centric markets coupled with sizable margin expansion across both their client and infrastructure segments.” His price target, $63, reflects his optimism and indicates a potential 22% upside.

Wells Fargo analyst Aaron Rakers was also impressed by DELL’s performance. He described the Q2 results as “strong,” and pointed out that the company has a positive cash flow and has been reducing core debt. He particularly noted increases to the company’s FY20 guidance. Rakers’s price target of $68 implies an upside of 31% for DELL.

DELL holds a Moderate Buy from the analyst consensus, derived from 6 buy and 4 hold ratings given the stock in the past three months. The average price target of $61 suggests and upside potential of 20% from the current share price of $51.

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