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InterDigital (IDCC) Up 2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for InterDigital (IDCC - Free Report) . Shares have added about 2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is InterDigital due for a pullback? 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.

InterDigital Q3 Earnings Beat on Top-Line Growth

Despite the coronavirus-induced adversities, InterDigital reported solid third-quarter 2020 results, wherein both top and bottom lines surpassed the respective Zacks Consensus Estimate. Higher revenues generated from new licensing avenues highlighted the operating leverage of the company’s business model and reflected the strength of its licensing business.

Net Income

The company reported net income of $23.8 million or 76 cents per share compared with $2.2 million or 7 cents per share in the year-ago quarter. The stellar year-over-year increase in earnings was largely attributable to top-line growth. Adjusted earnings for the reported quarter were 17 cents per share, which surpassed the consensus mark by 3 cents.

Revenues

The wireless R&D company’s revenues totaled $87.5 million, up from $72.5 million in the year-earlier quarter. The top line surpassed the Zacks Consensus Estimate of $85 million. The healthy double-digit growth amid the challenging macroeconomic environment was primarily driven by the new fixed-fee patent license agreement signed over the trailing 12-month period with China-based telecom equipment manufacturers, Huawei and ZTE.

Recurring revenues during the reported quarter were $87 million compared with $72.1 million a year ago. While total revenues from patent royalties came in at $85.2 million, the same from current technology solutions aggregated $2.3 million.

Other Details

Total operating expenses were $72.1 million, up from $68.7 million in the prior-year quarter due to intellectual property enforcement and non-patent litigation costs with Lenovo and Xiaomi. Operating income was $15.4 million compared with $3.8 million a year ago, buoyed by higher revenues in the reported quarter.

Cash Flow and Liquidity

In the first nine months of 2020, InterDigital generated $144.2 million of cash from operating activities compared with $72 million in the year-ago period. Free cash flow in the first nine months of 2020 was $110.6 million, up from $42.8 million in the prior-year period. As of Sep 30, 2020, the company had $919.4 million in cash and short-term investments along with $411.8 million of long-term debt and other liabilities.

Outlook

Banking on solid licensing agreements with leading consumer electronics customers, InterDigital is eyeing a healthy licensing business despite the coronavirus-induced pandemonium. The company is relatively immune to the adverse economic effects of the virus outbreak as fixed priced agreements make up for more than 90% of revenues. InterDigital also remains poised to gain from growth opportunities from 5G rollout.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 6.17% due to these changes.

VGM Scores

At this time, InterDigital has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 looks promising. Notably, InterDigital has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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