It has been about a month since the last earnings report for Universal Display Corp. (OLED). Shares have lost about 10.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Universal Display Q3 Earnings Beat on Higher Licensing Revenues

Universal Display reported relatively modest third-quarter 2024 results, with the bottom line surpassing the Zacks Consensus Estimate but the top line missing the same. However, the company reported a year-over-year top-line expansion, backed by solid licensing revenues.

Growing OLED proliferation in the IT market is driving growth. Management is undertaking several measures to improve its operational and strategic infrastructure to bolster its leadership position in the industry.

Net Income

Net income in the third quarter was $66.9 million or $1.40 per share compared with $51.5 million or $1.08 per share in the year-ago quarter. The improvement was primarily attributed to year-over-year net sales growth. The bottom line beat the Zacks Consensus Estimate of $1.20.

Revenues

The company generated $161.6 million in revenues, up from $141.1 million in the year-ago quarter. Increasing royalty and license fees boosted the top line. However, the top line missed the consensus estimate by $6 million.

Material sales contributed $83.4 million to revenues compared with $92.5 million in the prior-year quarter. Fluctuating material purchasing patterns from consumers affected net sales. The top line missed our estimate of $98 million.

Revenues from Green emitter sales decreased to $62.6 million from $68.9 million in the year-ago quarter, whereas revenues from red emitter sales fell to $20.1 million from $22.1 million in the year-ago quarter.

Revenues from Royalty and license fees were $74.6 million, up from $45.9 million in the year-ago quarter. The top line beat our estimate of $62.3 million.

Revenues from Contract research services were $3.6 million compared with $2.7 million in the prior-year quarter. The segment’s revenues missed our estimate of $5.2 million.

Other Details

Quarterly gross profit increased to $125.8 million from $106.8 million in the prior-year quarter. The gross margin was 78% up from 76% a year ago. Operating income was $67 million and the margin was 41% compared with the year-ago quarter’s $48.4 million and 34%, respectively.

Cash Flow & Liquidity

In the first nine months of 2024, Universal Display generated $219 million in cash from operating activities compared with $117.7 million in the year-ago period. As of Sept. 30, 2024, the company had $79.6 million in cash and cash equivalents and $54.3 million in retirement plan benefit liability.

Guidance Down

For 2024, the company expects revenue of $625-645 million, down from the $645-675 million mentioned earlier. The gross margin is projected at 76-77%. The operating margin is expected at 35-40%.

Several factors like higher inventory levels and macroeconomic concerns are affecting the spending decisions of some customers. However, management expects the IT market to be the key growth driver in the near term. Expanding markets like automotive and consumer electronics (including OLED AR/VR devices, smartwatches, smartphones and TVs) will drive growth in the upcoming years.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -15.53% due to these changes.

VGM Scores

At this time, Universal Display has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. 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, Universal Display has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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