Universal Display (OLED) Soars 66% YTD: Will the Trend Last?
Shares of computer peripherals producer Universal Display Corporation OLED have climbed 65.5% year to date, driven by solid end-market demand across its portfolio on the back of a flexible business model and solid cash flow. Earnings estimates for the current fiscal are up 9% since February this year, implying solid inherent growth potential. With healthy fundamentals, this Zacks Rank #3 (Hold) stock appears primed for further appreciation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Growth Drivers
Ewing, NJ-based Universal Display is a leading developer of technology and intellectual property (IP) for the Organic Light Emitting Diodes (OLED) market. OLEDs are thin, lightweight and power-efficient solid-state devices that emit light. This can be manufactured on flexible and rigid substrates, making them highly suitable for use in full-color displays and as lighting products.
Universal Display is a dominant provider of OLED technology. The technology is likely to eventually replace LED and liquid crystal display (LCD) technologies due to energy efficiency, higher contrast ratio, better viewing angle, lower video response time and smaller form factor. These superior properties of OLED provide ample room for growth.
Strong end-market demand also presents a significant growth opportunity for Universal Display over the long term. OLED is suitable for commercial usage in a number of industries, including smartphones, television, virtual reality devices and automotive markets.
The increasing proliferation of smartphones, wearables and tablets is driving the adoption of small-area OLEDs. Large-area OLED displays are increasingly used in televisions. Further, unlike LEDs, OLEDs can be viewed directly and doesn’t need diffusers. It is also expected to be cost-effective when manufactured in high volumes, which makes it suitable for commercial application in the solid-state lighting market.
Universal Display’s dominance in OLED technology is primarily driven by its strong portfolio of around 5,500 patents worldwide. The company’s UniversalPHOLED phosphorescent OLED technology produces OLEDs that are four times more efficient than fluorescent OLEDs and significantly more efficient than current LCDs. This provides Universal Display with a competitive advantage over other OLED makers.
Moreover, collaborations with leading centers of excellence like Princeton University, the University of Southern California, the University of Michigan and PPG Industries will continue to strengthen its patent portfolio in the long haul. The development of a blue phosphorescent emissive system is progressing steadily. Management expects the introduction of the entire series of red, green and blue phosphorescent emissive materials to open up several possibilities in a variety of OLED applications.
It has a long-term earnings growth expectation of 21.9% and delivered an earnings surprise of 23.8%, on average, in the trailing four quarters.
Other Key Picks
Comtech Telecommunications Corp. CMTL, carrying a Zacks Rank #2 (Buy), is a solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.
Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data.
Arista Networks, Inc. ANET, carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 20.4% and delivered an earnings surprise of 12%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
AudioCodes Ltd. AUDC carries a Zacks Rank #2. It has a long-term earnings growth expectation of 24.8% and delivered an earnings surprise of 14%, on average, in the trailing four quarters.
Headquartered in Lod, Israel, AudioCodes offers advanced communications software, products, and productivity solutions for the digital workplace. It provides a broad range of innovative products, solutions and services that are used by large multi-national enterprises and leading tier-1 operators around the world.
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Comtech Telecommunications Corp. (CMTL) : Free Stock Analysis Report
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