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Why Is Universal Display (OLED) Down 29.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Universal Display Corp. (OLED). Shares have lost about 29.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Universal Display due for a breakout? 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 Q3 Earnings & Revenues Miss Estimates

Universal Display Corporation delivered third-quarter 2018 adjusted earnings of 48 cents per share, which missed the Zacks Consensus Estimate of 63 cents. However, the figure surged 71.4% from the year-ago quarter.

Revenues jumped 26% to $77.6 million but lagged the Zacks Consensus Estimate of $88 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 revenue 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.”

Following the results shares plunged more than 5% yesterday, primarily owing to year-over-year growth of both top and bottom line.

Segment Details

Material sales (66% of total revenues) increased 9% from the year-ago quarter to $51.2 million, primarily due to increasing OLED panel demand. Green emitters sales (including yellow-green emitters) were $35.9 million, up 9.5% year over year. Red emitter sales were $14.6 million, up 6.6% from the year-ago quarter.

Royalty and license fees (30% of total revenues) increased 94% year over year to $23.3 million. Contract research services (4% of total revenues) were up 13.5% to $2.9 million.

Operating Details

GAAP Gross margin expanded 100 basis points (bps) on a year-over-year basis to 79.2%. Material gross margin contracted 190 bps on a year-over-year basis to 73.1%.

Research and development (R&D) expenses and selling, general and administrative (SG&A) expenses as a percentage of revenues of declined 120 bps and 330 bps, respectively.

GAAP operating margin expanded 800 bps on a year-over-year basis to 33.6%.

Balance Sheet

As on Sep 30, 2018, Universal Display had cash and cash equivalents (including short-term investments) of $493.6 million compared with $457.4 million, at the end of previous quarter.

The company generated $94.9 million as cash from operating activities for the nine months ended Sep 30, 2018.

The company recently approved a quarterly cash dividend payment of 6 cents per share to be paid on Dec 28, 2018 to shareholders as on Dec 14, 2018.

Guidance

Universal Display revised guidance for fiscal 2018. The company now expects revenues between $240 million and $250 million under ASC 606. Under ASC 605, the company expects revenue to be in the range of $315 million to $325 million). The Zacks Consensus Estimate is pegged at $846.7 million.

Management expects overall material gross margins in the 70-75% range.

Operating expenses (including R&D, SG&A and Patent costs) are anticipated to increase in the range of 10% to 15%, primarily due to higher R&D costs.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -59.7% due to these changes.

VGM Scores

At this time, Universal Display has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Universal Display has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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