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Why Is Universal Display (OLED) Up 30.2% Since Last Earnings Report?

Zacks Equity Research
Northrop Grumman (NOC) reports lower-than-expected sales in first-quarter 2019.

It has been about a month since the last earnings report for Universal Display Corp. (OLED). Shares have added about 30.2% in that time frame, outperforming the S&P 500.

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

Universal Display Q4 Earnings Top Estimates

Universal Display Corporation delivered fourth-quarter 2018 adjusted earnings of 40 cents per share surpassing the Zacks Consensus Estimate of 34 cents.

Revenues decreased 39.6% to $70.1 million and almost matched the Zacks Consensus Estimate of $70 million.

The company adopted a new Accounting Standards Codification ("ASC") 606 using full retrospective method from the first quarter of 2018. Per the new accounting standards, Universal Display now reports license fee revenues on a per gram sales basis. Under the transition method, the company applied “standard only to contracts that were not complete at the initial adoption date.”

Segment Details

Material sales (56.8% of total revenues) decreased 33.2% from the year-ago quarter to $38.9 million. Green emitters sales (including yellow-green emitters) were $27.5 million, down 32.8% year over year. Red emitter sales were $11.8 million, down 35.5% from the year-ago quarter.

Royalty and license fees (36.9% of total revenues) declined 51.8% year over year to $25.9 million. Adesis revenues came in at $4.4 million during the reported quarter compared with $2.3 million reported in the year-ago quarter.

Operating Details

GAAP Gross margin during the quarter under review came in at 73.9% compared with 85.4% reported in the year-ago quarter. Material gross margin contracted to 63% as compared to 74% reported in the year-ago quarter.

Operating expense during the reported quarter came in at $36.5 million compared with $41.1 million reported in the year-ago quarter.

GAAP operating margin came in at 21.8% as compared with 49.9% reported in the year-ago quarter.

Balance Sheet

As on Dec 31, 2018, Universal Display had cash and cash equivalents (including short-term investments) of $515.3 million compared with $493.6 million at the end of previous quarter.

The company generated $121.8 million as cash from operating activities for 12 months ended Dec 31, 2018.

The company recently approved a quarterly cash dividend payment of 10 cents per share (an increase of 4 cents from the previous quarter) to be paid on Mar 29, 2019 to shareholders as on Mar 15, 2019.

Guidance

Universal Display provided guidance for fiscal 2019. The company anticipates revenues between $325 million and $350 million under ASC 606. Under ASC 605, the company expects revenues to be in the range of $395 million to $420 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 48.39% due to these changes.

VGM Scores

At this time, Universal Display has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Universal Display has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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