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Bear of the Day: NetGear (NTGR)

Kevin Cook

NetGear (NTGR) is an $800 million provider of networking and Internet connected products for broadband access and network connectivity.


The stock has been in and out of the cellar of the Zacks Rank since August and just got kicked down there again after their earnings report on October 23 where both revenues and profits declined year over year.


The outlook wasn't too bright either, which caused analysts to lower their estimates once again. Since the report three weeks ago, full-year 2019 EPS projections dropped 19% from $2.27 to $1.83 and 2020 profit views fell 22% from $2.73 to $2.12.


My colleague Dave Borun last wrote about NetGear as the Bear of the Day in mid-August when shares were trading above $33. Here's what he had to say...


It’s not a great time to be in the network equipment business. The US-China trade dispute threatens to increase prices for firms which are heavily dependent on Chinese manufacturing and a threatened global economic slowdown would mean significantly reduced demand for finished products.


Netgear now finds itself stuck between the proverbial rock and hard place, with planned tariffs potentially increasing the cost of its products – manufacturing of which is outsourced to several other companies, primarily in China and Vietnam – just as demand for its commercial networking equipment seems likely to wane.


The products Netgear makes for the home consumer market tend to sell consistently, regardless of economic conditions, but the businesses that purchase more expensive switches, network appliances and storage solutions tend to ramp up their spending during boom times and cut back sharply when times are tougher.


(end of excerpt from Dave Borun's August 15 article)


What Dave was seeing and hearing then is still true today as tariff and global growth headwinds continue to impact NetGear.


Since the company has sales bigger than its market cap, it may remain a value play or potential M&A target.


But until the estimates stop going down, and start heading back up, it's best to stand aside. The Zacks Rank will let you know.


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