Why Is Universal Display (OLED) Down 36.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Universal Display Corp. (OLED). Shares have lost about 36.3% 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 Q4 Earnings Rise on Higher Revenues

Universal Display reported fourth-quarter 2019 adjusted earnings of 56 cents per share (per ASC Topic 606 basis), which improved 40% year over year.

The Zacks Consensus Estimate was pegged at 72 cents per share.

Revenues surged 45% to $101.7 million and also outpaced the Zacks Consensus Estimate by 4.5%.

Segment Details

Material sales (59.7% of total revenues) soared 52.3% from the year-ago quarter to $60.8 million. Green emitters sales (including yellow-green emitters) were $40.2 million, up 70% year over year. Red emitter sales were $13 million, up 10% year over year.

Royalty and license fees (37.2% of total revenues) increased 46% year over year to $37.8 million.

Contract research services revenues came in at $3.2 million, representing the remaining 3.1% of total revenues. The figure declined 27.4% year over year.

Operating Details

Gross margin in the quarter under review came in at 82.1%, expanding 820 basis points (bps) from the year-ago quarter. Material gross margin expanded from the year-ago figure of 63% to 73.2%.

Operating expenses of $49 million were up 34.2% year over year. As a percentage of revenues, operating expenses declined 390 bps on a year-over-year basis to 48.2%.

Consequently, operating margin expanded to 33.9% from the year-ago figure of 21.8%.

Balance Sheet

As of Dec 31, 2019, Universal Display had cash and cash equivalents (including short-term investments) of $646 million compared with $597.1 million as of Sep 30, 2019.

The company recently approved a quarterly cash dividend payment of 15 cents per share, to be paid out on Mar 31, 2020 to its shareholders of record on March 17.

Guidance

For 2020, Universal Display expects revenues between $430 million and $470 million. Management estimates Coronavirus to negatively impact revenues between $40 million and $50 million.

Moreover, the company expects overall 2020 material gross margins to be in the 70-75% range, consistent with the past few years.

Operating expenses are expected to increase in the range of 10-15% on a year-over-year basis.

Universal Display expects the installed base of OLED square meter capacity to increase by approximately 50% over the next two years, which will improve revenue opportunities for the company.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted -20.44% due to these changes.

VGM Scores

Currently, Universal Display has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth 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

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Universal Display has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.