Barclays: Marvell's Cavium Purchase Is The Right Deal At The Right Time

Marvell Technology Group Ltd. (NASDAQ: MRVL) announced a $6 billion acquisition of chip maker Cavium Inc (NASDAQ: CAVM) Monday. Both stocks moved sharply higher.

The Analyst

Barclays' Blayne Curtis upgraded Marvell from Equal-weight to Overweight and increased the price target for the stock from $20 to $30.

The Thesis

The acquisition makes sense strategically from a product, R&D and customer perspective, said Curtis. (See Curtis' track record here.) 

The deal has financial benefits for Marvell, as it adds much-needed growth, the analyst said. 

The combination of the two companies will drive both earnings growth and multiple expansion, Curtis said. 

Barclays estimates accretion of 27 cents or 15 percent in 2019 and 33 cents or 17 percent in 2020 using the guided synergies in COGS, SG&A and R&D expenses. Revenue synergies should contribute from 2020 forward, given two- to three-year design cycles. By 2020, Curtis expects that the combined entity is going to reach its long-term operating model, with revenue growing in mid-single digits.

The Price Action

Marvell is trading around 6 percent higher Tuesday and already gained around 6 percent Monday. Cavium is trading around 3 percent higher.

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