The technology sector continued to provide good news Monday as Marvell Technology Group (MRVL) raised its sales estimates for the third quarter. Shares rose 4.3% in midday trading.
Management said it expected higher revenue for the chip maker in line with "broad improvement in demand within multiple end markets," an indication the information technology spending and personal electronics sales will be better than earlier estimates.
Marvell said it now expects revenue for the quarter ending Oct. 31 to range between $760 million and $775 million. Earlier estimates were between $680 million to $730 million. Wall Street estimates, on average, pegged revenue at $711.8 million, according to the consensus in a survey by FactSet Research.
The integrated circuit maker also said it expects a one-time, $25 million tax benefit from the reversal of previously recorded tax reserves, which should add about 5 cents a share to results when it holds its scheduled earnings call Dec. 3.
Kevin Cassidy, an analyst with Thomas Weisel Partners, said Marvell's innovations with hard disk drive (HDD) designs, about 50% of its market, dovetail nicely with an overall increase in demand. "We believe Marvell continues to benefit from improving PC demand, particularly in notebooks and, from our point of view, new HDD controller design wins ramping into production in the first half of calendar year 2010," he wrote in a Monday note.
Bottom Line: Buy
It's too late to get all the upside here, but Marvell is part of a broad trend that should still reward investors, even if they are late to the tech rally.
While the country's biggest banks pull back from the abyss, investors still worry about regional names like Fifth Third Bancorp (FITB), whose shares slid Monday on weak earnings reports.
Cincinnati-based Fifth Third reported a worse-than-expected loss for the third quarter, citing an 18% drop in interest income. It fell 20 cents a share in the quarter, up from 14 cents a share a year ago. Wall Street analysts, on average, anticipated a 17-cents-a-share decline.
President, Chairman and CEO Kevin Kabat said on a Friday conference call that higher loan loss provisions and mounting credit cost were a big factor, but that the bank is seeking to deal with them as efficiently as possible. "We continue to work aggressively to mitigate risk in our loan portfolio” he said.
Collins Stewart analyst Todd Hagerman said the bank is going through the same issues as many of its regional peers, and while the most recent quarter was weak, it's in the process of righting itself. He cited its current low price to earnings value, said problem assets were stabilizing and pointed to the increasing potential for a return to profitability in the coming quarters. "Although the net loss exceeded expectations, non-performing assets and early stage delinquencies continued to stabilize and reserve coverage improved," he wrote.
Management's view that credit costs will drop in the current quarter was given some credence by BMO Capital Markets analyst Peter Winter. He said the turnaround story "is very much intact and is based on an above average capital position, above average [loan loss] reserve levels, above average pre-tax, pre-provision earnings and above average earning power in 2011 and beyond as credit costs should begin to normalize."
Bottom Line: Hold
Anyone investing in bank stocks now is either a short-term speculator looking to get in and out quickly, or they have a long view for the sector as it struggles to get back to profitability. That hasn't yet happened for Fifth Third, but patience could pay off.