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NETGEAR, Inc. (NTGR) Down 5.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for NETGEAR, Inc. (NTGR - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NETGEAR, Inc. 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 catalysts.

NETGEAR Q4 Earnings & Revenues Beat Estimates, Up Y/Y

NETGEAR reported solid fourth-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income was $30.9 million or 99 cents per share against net loss of $0.4 million or loss of 1 cent per share in the year-ago quarter. The improvement primarily resulted from operating income.

Quarterly non-GAAP net income was $40 million or 99 cents per share compared with $10.4 million or 34 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 13 cents, delivering a surprise of 15.1%.

In 2020, net income was $58.3 million or $1.90 per share compared with $25.8 million or 81 cents per share in 2019.

Revenues

NETGEAR generated revenues of $367.1 million, up 45.1% year over year. The performance was primarily driven by strong demand for its Wi-Fi 6 offerings, which drove exceptional growth in the connected home products (CHP) business. The top line surpassed the consensus estimate of $348 million.

Region wise, revenues from the Americas were $259.6 million (71% of total revenues), up 53.3% year over year. EMEA revenues were $67.5 million (18%), up 33.6%. APAC revenues grew 19.9% to $40 million (11%). Significant growth in the regions can be attributed to higher demand of CHP products in retail and service provider channels, fueled by the work-from-home trend.

In 2020, revenues increased 25.7% year over year to $1,255.2 million.

Quarterly Segment Results

Connected Home, which includes Nighthawk, Orbi, Nighthawk Pro Gaming and Meural brands, generated revenues of $296.1 million, up 61.7% year over year. This resulted from strong product demand in both the retail and service provider channels.

Revenues from SMB improved 2.7% year over year to $70.9 million. High performance ProAV and work-from-home solutions, with leading-edge Wi-Fi access points plus plug-and-play switches performed well.

Other Details

Operating income was $33.8 million against an operating loss of $0.2 million in the year-ago quarter. Non-GAAP gross margin increased to 30.6% from 27.9%. Non-GAAP operating margin was 11% compared with 4.4% in the prior-year quarter.

Cash Flow & Liquidity

During the fourth quarter, NETGEAR generated $46.1 million in cash from operations.

As of Dec 31, 2020, the company had $346.5 million in cash and cash equivalents with $25.5 million of non-current operating lease liabilities. This compares with the respective tallies of $190.2 million and $25.4 million a year ago.

Q1 Outlook

For the first quarter of 2021, NETGEAR anticipates revenues in the range of $300 million to $315 million. GAAP operating margin is estimated between 4.5% and 5.5%. Non-GAAP operating margin is expected between 8% and 9%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 19.05% due to these changes.

VGM Scores

Currently, NETGEAR, Inc. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. Notably, NETGEAR, Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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