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Ubiquiti Rides High on Internal Strength & Positive Trends

Zacks Equity Research

San Jose, CA-based wireless data communication products manufacturer, Ubiquiti Networks, Inc. UBNT, has charted an impressive trajectory with respect to its share price. Year to date, the company’s shares have returned over a whopping 80.0%, in stark contrast with the Zacks categorized Wireless Equipment industry's negative return of 7.5%.

Bullish Estimates

In addition, the company has a striking earnings surprise history, beating estimates consecutively six times in a row. It boasts an average earnings surprise of 19.7% for the trailing four quarters.

Also, Ubiquiti Networks has been witnessing solid activity on the earnings estimate revision front. Analysts have become increasingly bullish on the stock, as the Zacks Consensus Estimate for fiscal 2017 earnings has sharply trended up in the past couple of months, from $2.66 to $2.96, on the back of one upward estimate revision versus no lower.

Based on the positive business trends and a favorable demand environment, we believe that the stock has more room for growth in the upcoming quarters. Here’s highlighting some of Ubiquiti’s strongest growth drivers, which we believe, will prolong the company’s bull run.

Catalysts

Ubiquiti remains optimistic about its robust position in the wireless broadband market and improving foothold in the enterprise WLAN access point markets. On a geographic basis, the company enjoys strong prospects in the EMEA and Asia region. Quite recently, the U.S. government’s focus on the “E-Rate funding” program, that aids schools and libraries in obtaining affordable broadband, also signals bright prospects. In addition, Ubiquiti’s flexible business model is one of its key strengths that help it to adapt to the changing market conditions.

Its business model is backed by a rapidly growing and highly engaged community of service providers, distributors, value-added resellers, systems integrators and corporate IT professionals, referred to as the Ubiquiti Community. The overarching business model has enabled the company to slash operational costs for the past few quarters, boosting margin performance.

The strength of its business model has aided in driving significant demand for its products. We believe that the company’s resilient business model will accelerate its growth momentum, going forward. This apart, continuous product innovation and string of launches have proved to be major top-line drivers for the company.

During first-quarter fiscal 2017, sales growth of Enterprise Technology segment surged 75.2%, driven by solid demand of UniFi products (namely UniFi AC access points and UniFi Switch). Impressive market traction of the company’s recently launched products including, UniFi Mesh technologyand EdgePower, are expected to supplement top-line growth, moving ahead. As a matter of fact, Ubiquiti’s top-line performance has trended upward continuously in the past three years. This, in turn, has been supplementing bottom-line growth, which looks encouraging.

Concurrent with the first-quarter 2017 results, the Zacks Rank #1 (Strong Buy) issued optimistic guidance for the fiscal second quarter, largely attributable to favorable business trends and a sturdy demand environment. Management projects revenues in the range of $200–210 million. Non-GAAP earnings are anticipated within 73–79 cents per share.

Zacks Rank and Key Picks

Some other favorably placed stocks in the broader computer & technology sector include Cirrus Logic Inc. CRUS, Aspen Technology, Inc. AZPN and Guidance Software, Inc. GUID.

While Cirrus Logic sports the same Zacks Rank as Ubiquiti, Aspen Technology and Guidance Software carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cirrus Logic is a premier supplier of high performance analog circuits and advanced mixed-signal chip solutions. The company has beaten earnings estimates thrice in the trailing four quarters, with an average beat of 53.7%.

Aspen Technology deals in process optimization software and services. It boasts a remarkable average surprise of 23.6% over the trailing four quarters, having surpassed estimates strongly in each of them.

Guidance Software, an industry leader in digital investigative solutions, also has an impressive earnings history. The company has beaten estimates in all the four trailing quarters, with an average surprise of 18.6%.

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