Bull of the Day: Universal Display Corporation (OLED)
Universal Display Corporation (OLED) shares have skyrocketed roughly 90% so far this year and its top and bottom-lines are projected to soar. The firm also operates a business that is poised to grow as the proliferation of smartphones, wearables, TVs, and virtual reality continues.
OLED & Universal Display Overview
Universal Display went public in 1996 and has slowly helped change the way consumers experience technology. The company’s ticker is also its core offering. Organic light emitting diodes, better known as OLED, create more contrast between colors on screens and have become highly valuable to many display panel manufacturers around the world. OLEDs are monolithic, solid-state devices that are made up of a series of thin organic films placed between two thin-film conductive electrodes.
There is much more to the process, but the details aren’t necessary to understand the basic idea about why OLED has become a highly sought-after technology today. In the simplest terms, OLED technology essentially creates light within all of the pixels that make up a picture. This allows it to display images without a backlight, which is why it is known as emissive tech, and how it is able to create true blacks as well as impressive color contrast. OLED also enables screens to be very thin.
Today, Apple (AAPL), Samsung, and Google (GOOGL) all use OLED screens in at least some of their phones, with Apple being one of the later adopters. OLED TVs have also become popular among brands like Sony (SNE) and Samsung, even though they tend to be more expensive at the moment than some of their counterparts. As we mentioned, OLED screens tend to be thinner and they are also often more flexible than other types of screens. This could help Universal Display drive forward a possible folding screen revolution.
Moving on, the Ewing, New Jersey-headquartered firm is a leader in the research, development, and commercialization of OLED tech and materials used in display and solid-state lighting applications. Universal Display breaks down its revenue into three main categories: material sales, royalty and license fees, and contract research services. Material sales made up roughly 60% of total revenue last quarter with royalty and license fees at around 35%.
Universal Display and others have also touted the energy efficiency of OLED screens, which should help make the tech more attractive going forward. Plus, Universal Display hopes to profit off the expansion of the OLED lighting market. Investors should also note that last February the firm signed a long-term OLED material supply and license agreements with Samsung Display Co. The agreement will see Universal Display continue “to supply its proprietary UniversalPHOLED phosphorescent OLED materials and technology to Samsung Display for use in its OLED displays.” The deal is set to run through calendar year 2022, and could be extended two more years.
Investors will also notice the impressive run that OLED stock has been on over the last decade. The last serval years have, however, been more up and down for Universal Display. Yet its stock is still up 47% in the past 24 months, despite a huge drop off from the beginning of 2018 to the start 2019. And, as we mentioned at the top, Universal Display stock is up roughly 86% YTD and closed regular trading Thursday at $173.88 per share.
Outlook & Earnings Trends
Before we look ahead, it is important to note that Universal Display’s full-year 2018 revenue fell roughly 26% from the previous year. This dip can be seen in the first chart above and is part of the reason for the OLED’s 2018 price decline. With this is in mind, Universal Display is coming off a first quarter of fiscal 2019 that saw its adjusted earnings skyrocket from the year-ago period to $0.66 per share, which crushed our $0.26 per share Zacks Consensus Estimate. Meanwhile, the firm’s revenues soared over 100% to $87.8 million, which also destroyed our $61 million estimate.
Looking ahead, the company’s second quarter 2019 revenue is projected to climb by 37% to reach $76.91 million, based on our current Zacks Consensus Estimate. Peeking further ahead, the company’s full-year revenue is projected to surge 44.66% to hit $357.92 million—this would easily top 2017’s $335.63 million. This growth is then expected to continue in 2020, with Universal Display’s revenue projected to climb over 31% above our 2019 estimate to $469.13 million.
At the bottom end of the income statement, OLED’s adjusted Q2 earnings are projected to skyrocket 100% to $0.46 per share. On top of that, the firm’s fiscal 2019 EPS figure is expected to surge roughly 97% to $2.44 per share. Peeking further ahead, Universal Display’s 2020 earnings are projected to jump 49% higher than our current-year projection to $3.65 per share.
Along with its impressive growth outlook, which calls for sustained top and bottom-line expansion, the company’s earnings estimate revision picture has turned far more positive recently for fiscal 2019 and 2020.
Universal Display is a Zacks Rank #1 (Strong Buy) right now, based, in large part, on its longer-term upward earnings revision trends. The company also sports a “B” grade for Growth in our Style Scores system and is a dividend payer. In the end, OLED could be a growth stock for investors to consider that provides exposure to a display market, from smartphones to wearables, that is set to become more science fiction looking.
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