Marvell Technology Group Ltd.

MRVL Details

Acquisition of Inphi Corporation: Marvell Technology Group Ltd. (NASDAQ: MRVL) is a technology company that provides semiconductor solutions to transform the enterprise, cloud, automotive, industrial and consumer markets. As of 16 November 2020, the company’s market capitalization stood at ~$29.08 billion. On 29 October 2020, the company announced that it has a signed a definitive agreement to acquire Inphi Corporation in a cash and stock transaction. The combined entity is expected to have an enterprise value of approximately $40 billion. This acquisition will bolster the company’s leadership in the cloud and will extend its 5G position over the next decade. Further, the transaction is expected to generate annual run-rate synergies of $125mn to be realized within 18 months after the completion of the transaction. It is expected that the transaction will be completed by the second half of 2021, subject to necessary approvals and the satisfaction of customary closing conditions.

Q2FY21 Results: For Q2FY21, the company reported total revenue of $727 million, up 11% on pcp. Further, the company reported GAAP gross margin of 49.4%. At the end of the quarter, the company had cash and short-term investments of $832 million.

Q3FY20 Results (Source: Company Reports)

Outlook: The company is committed to invest in advanced technologies for future growth. Based on preliminary financial information, the revenue for Q3FY21 is expected to be in the range of $750 million (+/- 2%). The expected growth in revenue is driven primarily from 5G wireless infrastructure and cloud datacenter end markets. Further, the GAAP gross margin is expected to be approximately 51.4%. The company intends to release its Q3FY21 results on 3 December 2020.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last six and three months period, the stock has provided a return of 57.03% and 28.21%, respectively. The stock is currently trading near to its 52-weeks high price of $45.81, demonstrating that the stock might have factored in most of the positives of the company. On the technical analysis front, the stock has an immediate support level of ~$39.37 and resistance of ~$44.91. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). For the said purposes, we have taken peers like Advanced Micro Devices Inc (NYSE: AMD), Qualcomm Inc (NYSE: QCOM), Microchip Technology Inc (NYSE: MCHP), etc. Considering, the stock price movement in the recent past, current trading levels, and valuation, we give an “Expensive” rating for the stock at the closing price of $43.31, up by 0.12% on 16 November 2020.

MRVL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Rocket Companies, Inc.

RKT Details

Q3FY20 Results: Rocket Companies, Inc. (NYSE: RKT) is a Detroit-based holding company consisting of tech-driven real estate, mortgage, and financial services businesses. As of 16 November 2020, the company’s market capitalization stood at ~$44.95 billion. During Q3FY20, the company witnessed a YoY growth of 122% in its closed loan origination volume, which grew to a record $89.0 billion. Further, the company’ GAAP net income grew by 506% (YoY) to $3.0 billion in Q3FY20. Over the quarter, the company was focused on innovation, increasing monthly loan production capacity, and enhancing efficiency. The company recently announced the appointment of Jonathan Mariner to the board as chairperson for the board's Audit Committee.

Q3FY20 Results (Source: Company Reports)

Outlook: For Q4FY20, the company expects its closed loan volume to be between $88 billion and $93 billion, representing a growth of 73% to 83% on pcp. Further, the company expects its Net rate lock volume to be in the range of $80 billion and $87 billion, representing a growth of 82% to 98% on pcp.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  The company recently announced that its Chief Executive Officer, Jay Farner, will participate in a fireside chat as part of Citi's 2020 Financial Technology Virtual Conference which is going to happen on November 17, 2020. The stock of RKT has provided a return of 18.96% in the past three months and is currently inclined towards its 52-weeks low price of $17.5, offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$20.22 and a resistance of ~$29.11. We have valued the stock using EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers like OneMain Holdings Inc (NYSE: OMF), Santander Consumer USA Holdings Inc (NYSE: SC), etc. Considering the company’s decent Q3FY20 results, expected revenue growth in Q4FY20, current trading level and valuation, we give a “Buy” recommendation on the stock at the closing price of $22.65, up by 3.66% on 16 November 2020.

RKT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.