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Marvell (MRVL) to Report Q3 Earnings: What's in Store?

Marvell Technology Group Ltd.MRVL is anticipated to report third-quarter fiscal 2016 results on Nov 19.

Let's see how things are shaping up for this announcement.

Factors at Play

Marvell has been in troubled waters for some time now due to dismal second-quarter results and an internal probe because of some accounting inconsistencies. The probe came after Levi & Korsinsky, a national law firm, launched an investigation into the company for possible violations of the Federal Securities Laws.

The complaint alleged that Marvell's revenue recognition and control measures were inappropriate, leading to material misstatements of key metrics including those related to its business, operations and prospects.

Secondly, the internal investigation focuses on roughly 7% to 8% of revenues recognized in the last quarter which should have been accounted for in the third quarter.

Here we note that it if there were accounting irregularities, results may actually be weaker than reported right now. Also, if no inconsistencies are found, it would mean that the third-quarter results will be short by the amount pulled into the second. Consequently, the third quarter will also be weak.

Furthermore, competition in the semiconductor market from major players such as Intel Corp. INTC and Texas Instruments Inc. remains a headwind. Sluggish macroeconomic conditions and a shrinking PC market are the other near-term challenges.

Nonetheless, we are encouraged by the company's recent restructuring initiatives under which it intends to significantly downsize the mobile platform business to "refocus its technology to emerging opportunities in IoT [Internet of Things], automotive and networking". This planned restructuring is anticipated to cut approximately 17% of the company's global workforce and save $170 million to $220 million annually.

Earnings Whispers

Our proven model does not conclusively show that Marvell will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 9 cents. Hence, the difference is 0.00%.

Zacks Rank: Marvell's Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a couple of companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

TiVo Inc. TIVO , with an Earnings ESP of +12.50% and a Zacks Rank #3.

Staples, Inc. SPLS , with an Earnings ESP of +2.86% and a Zacks Rank #2.

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STAPLES INC (SPLS): Free Stock Analysis Report

INTEL CORP (INTC): Free Stock Analysis Report

MARVELL TECH GP (MRVL): Free Stock Analysis Report

TIVO INC (TIVO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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