Is Universal Display's Future Dark?

Shares of OLED specialist Universal Display (Nasdaq: PANL  ) hit a 52-week low yesterday. Let's look at how it got here and what's in store for the company.

How it got here
The big news yesterday was that Universal Display reported a very disappointing third quarter. Shares got crushed by 33% after the company said it only generated revenue of $12.5 million. That was dramatically worse than the consensus estimate of nearly $19 million. The company also surprised investors by reporting a net loss of $0.12 per share. Shareholders were expecting a profit of a nickel per share.

Worse yet, Universal Display had to cut its full-year revenue guidance from a prior range of $90 million to $110 million to just $80 million to $82 million. That was a quick change of heart, as the company had just raised guidance the quarter before.

One of the big culprits to the shortfall was that top customers Samsung and LG Display (NYSE: LPL  ) were planning on shipping a bunch of OLED TVs, but that didn't pan out as hoped, likely because the prices of OLED TVs remain prohibitively high for the average consumer. Now, Universal Display is sitting on a bunch of unsold inventory. Those OLED TV plans aren't shot altogether, though -- just delayed. For example, LG is still building its new OLED TV factory that will be able to churn out 180,000 panels per month.

It was a weak quarter any way you slice it, which is why Universal Display now trades at fresh lows.

How it's doing
Shares now trade near two-year lows.

PANL Chart

PANL data by YCharts.

We'll also add some more fundamentals from the trailing-12-month period to dig deeper.

P/E

P/S

Sales Growth

EPS Growth

Net Margin

109.7

14.6

38.1%

161.2%

13.6%

Source: Reuters.

With such high valuation multiples, shares are prone to their fair share of volatility, and this earnings miss is a testament to how painful that can be as growth prospects are called into question. Universal Display has always been a long-term bet.

What's next?
OLED displays continue to show up in smartphones, but those devices alone can't provide the OLED growth that investors crave. Universal Display still needs OLED TVs and lighting to take off.

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Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On November 09, 2012, at 1:40 PM, showmethemonet wrote:

    The biggest culprit was not tv's they had barely factored that in, and even the most optimistic projection for tvs would not have mattered much.

    The biggest culprit is they aren't selling as much host material, and they aren't selling and more red, and they aren't selling much green, and all of that came in spite of Samsung selling many more mobile phones.

    The biggest culprit is they are not getting a significant royalty per phone

  • Report this Comment On November 09, 2012, at 1:59 PM, sidneyleejohnson wrote:

    I have to completely disagree with the thesis as well... given expanded use of oled in cellphones and the additional use of green, UDC could have the growth that investors crave. The thesis the author presents is outright wrong. UDC makes flat fees based on its contract through 2017 with SMD... these flat fees go up based on expected capacity estimates made at the time the contract was signed... its likely these flat fee increases alone will provide quite a boast in fy2013...once SMD converts their existing lines to use green after their new lines take over for newer products SMD's material sales more than double(they get a cut on green hosts in addition to emitters). That is more than enough growth... to the authors point though the potential growth from TV and lighting is gigantic and can dwarf even mobile but there is still plenty of upside left in mobile when they are using only 1 of 3 colors from UDC so far (red). My comments are similar to the first comment but I don't quite agree with the way he put it... the problem is that SMD hit max capacity which led to no room to introduce green into the lines without slowing down needed production for existing products (GS 3, G Note 2). This crowded out the transition to making red and green oled products which pushed back green min material sales (and the bonus host sales ) into next fy when the new lines (V1, V2, A2E, A2 phase 3) are expected to arrive with newer oled technology applied (higher ppi, faster production, more oled colors (red and green ), etc. Doubling material sales by adding an extra color in mobile is a very big deal. Also the royalty being fixed on original estimates works in UDC's favor during pauses in capacity increases (the flat fees go up regardless of mat sales going up). The royalties are significant, they tripled from 2011 to 2012 and analyst expect a double from 2012 to 2013.

  • Report this Comment On November 09, 2012, at 2:06 PM, sidneyleejohnson wrote:

    The most important thing for investors to pay attention to is the ramp up of SMD's new lines V1, V2, A2E, and A2 phase 3...these at full capacity would quintuple oled capacity by end of 2014. Toss in both red and green and UDC may be looking at a 10 fold potential increase in revenue in 2 years. Sure quarter to quarter revenue is flat while SMD builds it ramp up ...but how soon should investors buy in to anticipate this kind of production capacity increase? toss in potential entrance of new oems LG, AUO , others and the future gets even brighter.

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