Marvell Technology Group Ltd.’s (MRVL) cash flow appears undervalued given the semiconductor company’s exposure to the PC and storage ecosystem and the ongoing shift from hard disk drives to SSD, a technology that requires higher semiconductor content, says Doug Freedman, Analyst and Managing Director at RBC Capital Markets.
“[A] name I think looks very inexpensive is Marvell. They are actually more exposed to the PC and storage ecosystem. When I look at Marvell, they are managing a transition from disk drive to solid state disk drives. When we go to solid state disk drives, they get more content, so they get to sell more dollars of semiconductors into a solid state drive than they do from a more traditional disk drive, a hard disk drive,” Freedman said.
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Freedman says MRVL also has a wireless business that may represent a drag to the company’s revenue, but nevertheless the company is undervalued to the point it does not change the mispricing of the company, and management continues purchasing stock.
“They also have a wireless business that they have been funding that is not contributing to earnings. If anything, it’s probably a significant drag to the present cash flow at the company. And with or without the drag of wireless, the company’s cash flow in my opinion is very undervalued. And their balance sheet is being used to continue to buy back a significant amount of company’s stock,” Freedman said.
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