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Bear of the Day: NETGEAR, Inc. (NTGR)

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NETGEAR, Inc. (NTGR - Free Report) shares have tumbled 31% in the last six months, as its sales continue to decline. The networking and Internet connected products firm’s near-term outlook also appears rough.

What’s Going On?

NETGEAR offers a variety of networking and Internet connected products for broadband access and network connectivity for consumers and enterprises alike. The company did top our Q4 fiscal 2019 bottom line estimate on February 5.

However, its adjusted fourth-quarter earnings of $0.34 per share marked a substantial downturn from the year-ago period’s $0.68 per share. Meanwhile, Q4 revenue slipped of 12.4%, which marked the third straight period of declining sales.

Overall, the company’s fiscal year sales fell nearly 6% to continue a larger downward trend for NETGEAR. “Due to reduced service provider shipments as carriers are awaiting roll outs of 5G product offerings, and our continued efforts to rebalance the channel inventory mix towards WiFi 6 products, our first quarter net revenue is expected to be in the range of $205 million to $220 million,” CFO Bryan Murray said in prepared fourth quarter remarks.

“Given this decline in our topline, our GAAP operating margin for the first quarter is expected to be in the range of (1.8)% to (0.8)%, and non-GAAP operating margin is expected to be in the range of 2.0% to 3.0%.”

 

 

 

 

Outlook & Earnings Trends

Looking ahead, our Zacks estimates call for NTGR’s first quarter fiscal 2020 revenue to fall 17.3% from the prior-year quarter to $205.9 million, which comes in at the bottom end of the firm’s own guidance. At the bottom end of the income statement, NETGEAR’s adjusted quarterly earnings are projected to tumble over 68% to $0.19 a share.

Despite the expected first quarter downturn, the company is projected to see its full-year fiscal 2020 sales climb marginally, with its adjusted earnings expected to pop 1.6%. But both of these figures come against an easy-to-compare year.

The nearby chart also shows investors just how much worse NTGR’s earnings picture has turned since it reported last week.

 

 

 

 

Bottom Line

NETGEAR’s strong negative earnings revision trends have the stock sitting at a Zacks Rank #5 (Strong Sell) right now. The stock also holds an “F” grade for Growth in our Style Scores system and NTGR is part of an industry that rests in the bottom 34% of our more than 250 Zacks industries.

Therefore, the stock might be worth staying away from for now, until it shows some signs of a comeback.

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