Brian Bolan

Bull of the Day: Ubiquiti Netowrks (UBNT)

by Brian Bolan

November 14, 2013 |

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Ubiquiti Networks (UBNT - Snapshot Report) recently crushed earnings (again) and moved up guidance in a meaningful way. UBNT is the Bull of the Day as a Zacks Rank #1 (Strong Buy).

Bull of the Day Twice Before

Maybe you are not a religious reader of the Bull and the Bear of the day. Maybe this article will change that.

On May 31, 2013, UBNT was highlighted as the Bull of the Day. You can access that article via this link:

Bull Of the Day, May 31 2013

Since that article ran, UBNT is up 121%.

On August 15, I highlighted yet another earnings beat for UBNT. Bull Of the Day, August 15 2013 and since that article ran, the stock is 46%.

Company Description

Ubiquiti Networks is a communications technology company, that offers a portfolio of communications networking products and solutions in the outdoor wireless, enterprise WLAN, video surveillance, wireless backhaul, and machine-to-machine communications markets worldwide.

Earnings History

A recent earnings report was met with exuberant buying on Wall Street. the June 2013 quarter was reported on August 8, and the following day saw the stock jump 28%!

It was the fourth beat in the row, following positive earnings surprises of 5.2%, 4.5% and 18.5%. The most recent positive earnings surprise was 15.4%.

Revenue has grown dramatically over the last five quarters. Starting with the September 2012 quarter, the company posted $62M, but the next quarter saw an increase to $75M. The March 2013 quarter was another kick higher to $83M and the June 2013 report had revenue ramping to $101M. The most recent quarterly report has revenue jumping nearly 30% from the previous quarter to $129.7M.

Guiding Higher

It is one thing to beat earnings four quarters in a row, it is quite another to do so with a blisteringly strong quarter that included an improved outlook.

UBNT raised guidance for earnings for the third consecutive time and this marks the fifth quarter of increased revenue guidance.

After reporting about $129M in revenue in the most recent quarter, management guided the next quarter to a range of $130M - $136M. At the time, the consensus was calling for revenue of $123M, so at the midpoint, and increase of $10M.

Earnings Estimates Launch Higher

Following the recent beat and earnings guidance, analysts have been busy moving their numbers higher. Following the previous quarter, analysts first moved their numbers up to $1.46, but before the month was over, they added another dime to the estimate. The number crept higher to $.159 before the report and once again, it has launched higher to $1.76.

These increases are also seen in the 2014 estimates, but the early look out to 2015 doesn't hold as much promise. One reason for this could be that the analysts just don't have that much visibility two years down the road. Another aspect to this story could be the long sales cycle for the broadband wireless equipment.

Valuation

Price is what you pay and value is what you get. In UBNT, you get great value for a great growth story. On a trailing basis, a PE of 35x is rich compared to a 29x industry average, but when you look forward, the 23.7x multiple shows UBNT trading at a discount to the industry average of 24.7x. The near term shows some hefty expectations, with analysts projecting year over year revenue growth of 78% and EPS growth of 123%. Comparisons to the industry averages for those two metrics are almost at absurd levels.

The Chart

A great tool of the Zacks site is the price and consensus chart. It gives investors a great idea of how the Zacks Consensus Estimate either guides the stock higher or holds them lower. The price and consensus chart for UBNT shows how estimates for 2014 have just sky rocketed higher and imply an even higher stock price. It's no secret that I have enjoyed recommending this stock over the last several months, the team there has made me look smart, and that is no small feat.

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

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