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Why Is Ubiquiti (UBNT) Down 17.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Ubiquiti Networks (UBNT - Free Report) . Shares have lost about 17.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ubiquiti due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ubiquiti Tops Q3 Earnings and Revenue Estimates, Up Y/Y

Ubiquiti reported healthy third-quarter fiscal 2019 results with year-over-year increase in revenues and adjusted earnings. Both the bottom line and the top line surpassed the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income for the quarter was $88.3 million or $1.25 per share compared with $102.7 million or $1.32 per share in the prior-year quarter. The year-over-year deterioration, despite top-line improvement and reduction in share count was due to higher income tax expenses.

Non-GAAP net income came in at $88.9 million or $1.26 per share compared with $76 million or 98 cents per share, a year ago. The bottom line beat the Zacks Consensus Estimate by 20 cents.

Revenues

Quarterly revenues increased 13.8% year over year to $284.9 million, primarily driven by higher sales at Enterprise Technology business. The top line surpassed the consensus estimate of $257 million.

By product type, revenues from Service Provider Technology were $109.4 million compared with $100.9 million in the year-ago quarter. Enterprise Technology revenues were $175.5 million compared with $149.5 million a year ago.

Geographically, revenues from North America were $109.1 million compared with $94.8 million in the year-ago quarter. Revenues from Europe, the Middle East and Africa were $125.7 million, up from $113.7 million. Revenues from Asia Pacific were $27.1 million, up from $22 million. Revenues from South America were $23 million compared with $19.9 million in the prior-year quarter.

Other Details

Gross profit increased to $132.8 million from $114.5 million in the year-ago quarter on the back of top-line growth. Gross margin improved to 46.6% from 45.7%, driven by the mix of products sold, however, partly offset by higher indirect expenses.

Total operating expenses were $30.7 million compared with $29.6 million in the year-earlier quarter. Despite year-over-year increase in operating expenses, operating income improved to $102.1 million from $84.9 million owing to higher gross profit.

Cash Flow and Liquidity

During the first nine months of fiscal 2019, Ubiquiti generated $158.3 million of net cash from operating activities compared with $285.1 million in the year-ago period. As of Mar 31, 2019, the computer networking company had $310.3 million in cash and equivalents with $438.9 million of long-term debt.

During the reported quarter, Ubiquiti repurchased 91,249 shares for $9 million at an average price of $98.63 per share. The company had $178.2 million worth of shares outstanding under its $200 million share repurchase program, announced on Nov 9, 2018.

Fiscal 2019 Outlook Reiterated

Ubiquiti has reiterated its earlier guidance for fiscal 2019, backed by the recent business trends. The company expects to generate revenues between $1.1 billion and $1.2 billion and earnings per share (EPS) of $4.00-$4.80 in fiscal 2019. Also, due to potential impact of the tariffs imposed on certain products imported into the United States from China, the low-end of EPS may decline to $3.65 or lower. The company anticipates to mitigate the effect of the tariffs in the long term and expects long-term gross margin between 45% and 50%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Ubiquiti 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 trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Ubiquiti has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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