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Bear of the Day: Zagg Inc. (ZAGG)

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Zagg is a company that designs protective clear coverings and accessories for consumer electronic and hand-held devices. Its flagship brand, the invisibleSHIELD, is a protective, high-tech patented film covering, designed for Apple AAPL iPhones, laptops, cell phones, digital cameras, PDAs, watch faces, GPS systems, gaming devices and other products.

Q2 Earnings Disappoint

Diluted operating loss of 9 cents per share matched the Zacks Consensus Estimate, while revenues of $106.8 million fell 10% year-over-year. This decrease in total sales was primarily due to a pull forward of product shipments into Q4 2018 to try and offset a potential tariff increase. Gross profit increased to $37.8 million, or 35% of net sales, while operating expenses grew 35% to $44 million.

In the earnings release, CEO Chris Ahern talked about the “pressure [Zagg is] experiencing in [its] core business as the result of a decline in consumer demand for smartphone devices the market has experienced this year.”

Analysts have turned bearish on Zagg, with two cutting estimates in the last 60 days for fiscal 2019. Earnings are expected to decline over 56% for the year, and the Zacks Consensus Estimate has dropped 81 cents during that same time period from $1.44 to $0.63 per share. This sentiment has stretched into 2020. While earnings could see positive growth, our consensus estimate has dropped 51 cents in the past two months.
ZAGG is now a Zacks Rank #5 (Strong Sell).

Shares of the electronics stock have slumped nearly 36% since January compared to the S&P 500’s gain of about 15.3%.

Bottom Line

In order to improve profitability, Zagg is implementing a number of cost savings initiatives like headcount reductions, reducing the amount of operating expense categories, and speeding up “cost synergies” from its recent acquisitions into this year.

But, management did say that it is “exploring strategic alternatives to maximize stockholder value” with the help of BofA Merrill Lynch, so until the company figures out its next moves, it’s probably best to stay away.
Investors who are interested in adding a computer and technology peer to their portfolio should take a look at Zacks Rank #1 (Strong Buy) ranked Universal Display Corp. OLED, up almost 80% year-to-date.

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