Marvell Technology Group Ltd. (MRVL) Will Head Higher in 2013

David Einhorn GREENLIGHT CAPITALHedge fund manager David Einhorn has been bullish on Marvell Technology Group Ltd. (NASDAQ:MRVL), increasing his stake in the company from 16.6 million shares in the third quarter of 2011 to more than 51.8 million shares. As of December 2012, Marvell became his fourth biggest position, accounting for 5.9% of his total portfolio. However, Marvell has just reported depressing full year 2013 earnings results. Both the revenue and net income experienced significant declines from fiscal year 2012. Should investors follow David Einhorn into Marvell? Let’s find out.

A Declining Year is No Worry

In the fiscal year ended February 2013, Marvell Technology Group Ltd. (NASDAQ:MRVL) recorded $3.17 billion in revenue, a 7% decline from fiscal year 2012. The net income experienced a huge decrease of 50% to only $304 million, or $0.54 per share. Over the past several years, the company has been buying back a significant amount of its shares outstanding. The company reported that it had retired around 184 million shares, or about 27% of the total outstanding shares in the past 10 quarters. Since the fourth quarter of 2011, Marvell has returned about $2.5 billion in total to shareholders in the forms of both share repurchase and dividends.

A Low Probability Fine

At the end of 2012, a federal court fined Marvell as much as $1.17 billion due to the infringement of two patents that belonged to Carnegie Mellon University. However, David Einhorn strongly believed that the fine could be substantially reduced or eliminated. In the fourth quarter letter to shareholders, he wrote: There are many grounds, but one of the simplest is that most of the damages were awarded based on foreign sales that are generally not protected by U.S. Patents. The jury found that since the product was “designed and tested” in the U.S., damages were payable even though the manufacturing and sales happened abroad.” Indeed, all of Marvell’s products are manufactured outside of the US. The company’s primary assembly and test subcontractors were in the Pacific Rim region. In addition, the majority of its sales, around 88% of the total revenue, were generated from customers in Asia.

Peer Comparison

In terms of the capital structure, Marvell still had quite a strong, liquid balance sheet. As of February 2013, Marvell recorded $4.48 billion in total stockholders’ equity, $1.92 billion in cash and short-term investments, and no debt. With the current trading price of $9.50 per share, Marvell is worth nearly $5.1 billion on the market. Because of the huge cash on hand, the enterprise value is much smaller–nearly $3.2 billion. The market is valuing Marvell at around 6.46 times EV/EBITDA. Compared to its two peers STMicroelectronics N.V. (ADR) (NYSE:STM) and LSI Corp (NASDAQ:LSI), Marvell seems to be moderately priced. LSI is the smallest corporation among the three, with only $3.84 billion in total market cap. With its current trading price of $6.95 per share, LSI is valued the cheapest, at 5.34 times EV/EBITDA. STMicroelectronics, with a total market cap of $7.1 billion, has the highest valuation at 13.6 times EV multiple. Among the three, LSI enjoyed the highest operating margin at 17%, while Marvell generated 9.3% in operating margin. STMicroelectronics generated a negative operating margin of -8% over the past 12 months.

Foolish Bottom Line

With a terrific record of returning cash to shareholders, a decent operating margin, and a low valuation, I personally think Marvell’s share price might head much higher in 2013.

The article Marvell Will Head Higher in 2013 originally appeared on Fool.com and is written by Anh HOANG.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!