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Why Is Universal Display (OLED) Down 3.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Universal Display Corp. (OLED). Shares have lost about 3.2% 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 drivers.

Universal Display Q4 Earnings & Revenues Top Estimates

Universal Display Corp. reported fourth-quarter 2020 adjusted earnings of $1.13 per share, which topped the Zacks Consensus Estimate by 79.4%. In the fourth quarter of 2019, Universal Display had reported earnings per share of 56 cents.

Revenues increased 39.1% year over year to $141.5 million and beat the Zacks Consensus Estimate by 32.3%.

Segment Details

Material sales (44.2% of total revenues) increased 3% from the year-ago quarter’s figure to $62.5 million. Green emitters sales (including yellow-green emitters) were $48.2 million, up 1% year over year. Red emitter sales were $14.3 million, up 10% year over year.

Royalty and license fees (53% of total revenues) surged 99% year over year to $75 million driven by higher customer sales of royalty-bearing OLED licensed products.

Adesis revenues came in at $4 million during the reported quarter compared with $3.2 million in the year-ago quarter.

Contract research services revenues (2.8% of total revenues) came in at $3.96 million, up 24.6% year over year.

Operating Details

Gross margin in the quarter under review came in at 80.9%, which contracted 120 basis points (bps) from the year-ago quarter’s figure. Material gross margin came in at to 61% compared with 73% reported in the year-ago quarter. The downside was caused by higher cost of material sales.

Operating expenses of $48.8 million were down 0.6% year over year. As a percentage of revenues, operating expenses contracted to 34.5% from 48.2% reported in the year-ago quarter.

The company reported operating income of $65.8 million, up 90.7% on a year-over-year basis. However, operating margin expanded to 46.5% from 33.9% in the prior-year quarter.

Balance Sheet

As of Dec 31, 2020, Universal Display had cash and cash equivalents (including short-term investments) of $730 million compared with of $673 million as of Sep 30, 2020.

The company hiked quarterly cash dividend by 33.3% to 20 cents per share, to be paid out on Mar 31, 2021 to all shareholders of record on Mar 16, 2021.

2020 Numbers in Details

For 2020, Universal Display adjusted earnings of $2.80 per share compared with $2.92 reported in 2019. Revenues increased 6% year over year to $428.9 million.
The company reported operating income of $157.5 million, down 0.5% on a year-over-year basis.

For 2020, cash flow from operating activities was $148.9 million compared with $193.9 million reported in 2019.

Guidance

Universal Display expects 2021 revenues in the range of $530-$560 million.  
Moreover, the company expects 2021 material gross margins in the 65-70% range, while overall gross margins are expected to be around 80%. Operating margins are 2021 are anticipated in the 40-45% range.

Research & development (R&D) expenses are projected to be up nearly 25% and Selling, general and administrative (SG&A) expenses are projected to be up nearly 15% for 2021. Overall, operating expenses (SG&A, R&D and patent costs) are expected to increase in the range of 20-25% on a year-over-year basis.

Markedly, Universal Display’s products are widely used by OEMs in the consumer electronics markets like Apple, Lenovo and Samsung. In 2020, the company also announced its collaboration with China Star Optoelectronics and set up OVJP Corporation to further commercialization of OLED TV manufacturing technology.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Universal Display has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 #3 (Hold). We expect an in-line return from the stock in the next few months.


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