key insights

  • Marvell Technology's expected fair value is $58.80 based on the second-stage free cash flow to the stock.

  • Marvell Technology's stock price of $72.65 indicates it may be overvalued by 24%

  • The analyst price target for MRVL is US$87.72, 49% above our fair value estimate.

How far is Marvell Technology, Inc. (NASDAQ:MRVL) from its intrinsic value? Using the latest financial data, we calculate the stock's value by discounting a company's forecast of its future cash flows to its current value. Check to see if the price is fair. This is done using a discounted cash flow (DCF) model. Believe it or not, as you can see from this example, it's not that difficult to follow.

It's worth pointing out that DCF isn't perfect for every situation, as companies are valued in many different ways. To learn a little more about intrinsic value, read the Simply Wall St analysis model.

Check out our latest analysis for Marvell Technologies.

Is Marvell's technology given its due recognition?

As the name suggests, we use a two-stage DCF model that considers two stages of growth. The first stage is typically a period of higher growth, leveling off towards terminal value, which is captured by a second period of 'steady growth'. First, you need to estimate your cash flows for the next 10 years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume that companies with shrinking free cash flow will see their rate of shrinkage slow, and companies with growing free cash flow will see their growth rate slow over this period. This reflects the fact that growth tends to be slower in the early years than in later years.

It is generally assumed that a dollar today is worth more than a dollar in the future, so the sum of these future cash flows is discounted to today's value.

Estimated 10-year free cash flow (FCF)











Leveraged FCF ($, million)

1.19 billion USD

1.3 billion USD

2.26 billion USD

2.85 billion USD

3.11 billion USD

3.55 billion USD

USD 3.88 billion

4.15 billion USD

4.39 billion USD

4.59 billion USD

Growth rate estimation source

Analyst x 7

Analyst x 8

Analyst x 9

Analyst x 6

Analyst x 1

Analyst x 1

Estimated @ 9.23%

Estimated @ 7.15%

Estimated @ 5.69%

Estimated @ 4.67%

Present value ($, million) discounted at 8.6%

11,000 USD

11,000 USD

$1.8 million

2 million dollars

$2.1 million

$2.2 million

$2.2 million

$2.1 million

$2.1 million

2 million dollars

(“Est” = FCF growth rate estimated by Simply Wall St)
Present value of cash flows over 10 years (PVCF) = USD 19 billion

After calculating the present value of the first 10 years of future cash flows, you need to calculate the final value, which takes into account all future cash flows from the first stage onwards. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the five-year average of the 10-year Treasury yield of 2.3%. The final cash flows are discounted to today's value at a cost of equity of 8.6%.

Terminal value (TV)=FCF2033 × (1 + g) ÷ (r – g) = USD 4.6 billion × (1 + 2.3%) ÷ (8.6% – 2.3%) = USD 74 billion

Present Value of Terminal Value (PVTV)= TV / (1 + r)Ten= USD 74 billion ÷ ( 1 + 8.6%)Ten= USD 32 billion

The total value is the sum of the cash flows over the next 10 years plus the discounted terminal value, resulting in a total equity value, which in this case is USD 51 billion. The final step is to divide the stock value by the number of shares outstanding. Compared to the current share price of $72.7, the company looks slightly overvalued at the time of this writing. However, keep in mind that this is just a rough estimate and, like any complex formula, there is garbage in and garbage out.




It is important to point out that the most important input to discounted cash flows is the discount rate, which is, of course, the actual cash flows. If you disagree with these results, try doing the calculations yourself and test your assumptions. Additionally, DCF does not give a complete picture of a company's potential performance because it does not take into account the cyclicality of the industry or the company's future capital requirements. Given that we are considering Marvell Technology as a potential shareholder, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) considering debt. For this calculation, we used 8.6% based on a leverage beta of 1.380. Beta is a measure of a stock's volatility compared to the market as a whole. Beta values ​​are derived from industry average beta values ​​for globally comparable companies and are constrained to a range of 0.8 to 2.0, which is a reasonable range for stable businesses.

Marvell Technology SWOT Analysis





For the future:

A company's valuation is important, but it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Rather, the best use of DCF models is to test certain assumptions and theories to see if a company is undervalued or overvalued. For example, a small adjustment to the terminal value growth rate can dramatically change the overall result. Why is the intrinsic value lower than the current stock price? Regarding Marvell Technology, he summarized three relevant factors that need to be further considered.

  1. financial health: Does MRVL have a healthy balance sheet? Check out our free balance sheet analysis, including 6 quick checks on key factors like leverage and risk.

  2. future earnings: How does MRVL's growth rate compare to its peers and the broader market? Dive deeper into analyst consensus numbers for the coming years by interacting with the free Analyst Growth Expectations chart.

  3. Other solid businesses: Low debt, high return on equity, and good past performance are the fundamentals of a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you haven't considered before?

PS. Simply Wall St updates DCF calculations for all US stocks daily, so if you want to know the intrinsic value of other stocks, search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.

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