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Why Is Universal Display (OLED) Down 7.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Universal Display Corp. (OLED - Free Report) . Shares have lost about 7.9% 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 Q2 Earnings Miss, Revenues Fall Y/Y

Universal Display reported second-quarter 2020 adjusted earnings of 2 cents per share (per ASC Topic 606 basis), which declined 78.3% year over year and missed the Zacks Consensus Estimate by 16.7%.

Revenues declined 50.9% year over year to $58 million and missed the Zacks Consensus Estimate by 18.3%. The decrease in revenues was mainly due to weakened demand for emitter products as a result of the COVID-19 pandemic and higher inventory level.

Segment Details

Material sales (55% of total revenues) decreased 58.2% from the year-ago quarter’s figure to $31.9 million. Green emitters sales (including yellow-green emitters) were $24.2 million, down 54% year over year. Red emitter sales were $7.5 million, down 53.1% year over year.

Royalty and license fees (38.6% of total revenues) decreased 42.4% year over year to $22.4 million. Adesis revenues came in at $3.7 million during the reported quarter compared with $2.9 million reported in the year-ago quarter.

Contract research services revenues (6.3% of total revenues) came in at $3.6 million, up 26.2% year over year.

Operating Details

Gross margin in the quarter under review came in at 78.1%, which contracted 150 basis points (bps) from the year-ago quarter’s figure. Material gross margin contracted 300 bps year over year to 68%.

Operating expenses of $46.5 million were up 2.4% year over year. As a percentage of revenues, operating expenses expanded to 80.2% on a year-over-year basis from 38.4% in the year-ago quarter.

The company reported operating loss of $1.1 million against operating income of $48.6 million in the year-ago quarter.

Balance Sheet

As of Jun 30, 2020, Universal Display had cash and cash equivalents (including short-term investments) of $644 million compared with of $639.8 million as of Mar 31, 2020.

Cash flow from operating activities was $32 million compared with $5.7 million in the prior quarter.

Guidance

The company has withdrawn its guidance for 2020 due to COVID-19 related uncertainties prevailing in the market.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -20.69% due to these changes.

VGM Scores

At this time, Universal Display has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Universal Display has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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