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Ubiquiti (UBNT) Up 31.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Alteryx, Inc. (AYX) closed the most recent trading day at $114.50, moving -1.95% from the previous trading session.

A month has gone by since the last earnings report for Ubiquiti Networks (UBNT). Shares have added about 31.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ubiquiti due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Ubiquiti Q2 Earnings Beat on Healthy Revenue Growth

Ubiquiti reported solid second-quarter fiscal 2019 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased on a year-over-year basis.

Net Income

On a GAAP basis, net income for the reported quarter was $77.8 million or $1.09 per share against loss of $51.5 million or loss of 66 cents per share in the prior-year quarter. The year-over-year improvement was primarily due to top-line growth and lower provision for income taxes. Non-GAAP net income came in at $95.1 million or $1.33 per share compared with $59.6 million or 76 cents per share a year ago. The bottom line beat the Zacks Consensus Estimate by 39 cents.

Revenues

Quarterly revenues increased 22.5% year over year to $307.3 million, primarily driven by higher sales at Enterprise Technology business. The top line surpassed the consensus estimate of $253 million. By product type, revenues from Service Provider Technology were $113.2 million compared with $119.9 million in the year-ago quarter. Enterprise Technology revenues were $194.1 million compared with $131 million a year ago. Geographically, revenues from North America were $121.2 million compared with $95 million in the year-ago quarter. Revenues from Europe, the Middle East and Africa were $134.4 million, up from $102 million. Revenues from Asia Pacific were $30.7 million, down from $33.1 million. Revenues from South America were $20.9 million compared with $20.7 million in the prior-year quarter.

Other Quarterly Details

Gross profit increased to $140.2 million from $96.9 million in the year-ago quarter on the back of top-line growth. Gross margin improved to 45.6% from 38.6%. The computer networking company expects to incur costs due to higher tariffs imposed on certain Chinese products imported into the United States, and thus anticipates near-term gross margin between 42% and 45%. Total operating expenses were $48.6 million compared with $30.8 million in the year-earlier quarter. Despite year-over-year increase in operating expenses, operating income improved to $91.7 million from $66.1 million owing to higher gross profit.

Cash Flow and Liquidity

During the first six months of fiscal 2019, Ubiquiti generated $144.6 million of cash from operating activities compared with $165.7 million in the year-ago period. As of Dec 31, 2018, the company had $293.3 million of cash and cash equivalents with long-term debt of $448.2 million. Ubiquiti repurchased 356,576 shares for $34.7 million at an average price of $97.31 per share between Nov 8, 2018 and Feb 7, 2019. The company’s board of directors announced a cash dividend of 25 cents per share payable Feb 25 to shareholders of record as on Feb 18.

Fiscal 2019 Outlook Reaffirmed

Ubiquiti has reaffirmed its earlier guidance for full-fiscal 2019 based on the recent healthy demand trends in its end markets. The company expects to generate revenues between $1.1 billion and $1.2 billion and earnings per share (EPS) of $4.00-$4.80 in fiscal 2019. Also, due to the potential impact of the tariffs imposed for certain products imported into the United States from China, the low-end of EPS may decline to $3.65 or lower. The company anticipates to mitigate the effect of the tariffs in the long term and expects long-term gross margin between 45% and 50%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Ubiquiti has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Ubiquiti has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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