I've watched Universal Display (OLED 0.62%) come a long way since I bought my first shares in the organic light-emitting diode (OLED) leader almost a decade ago. I've seen the company sign its first long-term license and material-supply agreement with Samsung Display in 2011, the arrival of LG's first large-screen OLED televisions in stores in 2013, and Apple's adoption of OLED starting with its first Apple Watch in late 2014 followed by an expansion to the popular iPhone line in late 2017. Universal Display's flagship technology is disrupting the world of electronic displays as we know it.
But that also raises the question: Where will Universal Display be in another 10 years?
While it's obvious much can happen in a decade -- and I'm certainly not willing to estimate exactly where Universal Display's share price will be 10 years from now -- I think it's valuable to at least attempt to look ahead to see what's coming for the company and its shareholders.
Check out the latest earnings call transcript for Universal Display.
The OLED display market will evolve
In Universal Display's most recent quarterly report in February, CFO Sid Rosenblatt predicted 2019 will be a year of "meaningful growth [...] as new OLED capacity comes online, new OLED products are launched, and progress continues with our customers' OLED commercialization plans." The midpoint of Universal Display's 2019 guidance calls for revenue growth of more than 36%. That growth will be driven by the aforementioned boost in its customers' manufacturing capacity, as well as a continued proliferation of devices featuring OLED displays from smartphones to tablets and large-screen OLED TVs.
Many on Wall Street believe this momentum will prove sustainable. Analysts' consensus estimates predict Universal Display will achieve annualized revenue growth of more than 37% over the next five years.
But 2019 will also bring a significant change that's indicative of the form factors OLED displays will take in the coming years. To start, in late April, Samsung will officially launch its new Galaxy Fold, a 4.6-inch smartphone that can literally unfold into a tablet with a 7.3-inch flexible OLED display on the inside.
Samsung's Galaxy Fold device will launch in late April 2019. Image source: Samsung.
What's more, when Samsung first introduced the Galaxy Fold this past November, it showed investors an intriguing pipeline including plans to introduce rollable and stretchable OLED displays over the next several years.
To be clear, we've seen these technologies demonstrated by Samsung Display and by its peers for quite some time. But the next decade could see their wide-scale commercialization finally come to fruition -- and Universal Display will be a primary beneficiary of those developments.
Lighting will begin to take off
Meanwhile, thanks largely to those novel form factors and the steady, even light OLEDs provide, the OLED lighting industry today has barely scratched the surface of its longer-term potential. According to a recent report from ResearchAndMarkets.com, sales of OLED lighting products are poised to grow at an annualized rate of 49.7%, to $1.4 billion by 2022, before nearly quintupling again to more than $8.1 billion by 2027
IMAGE SOURCE: UNIVERSAL DISPLAY.
As Universal Display management pointed out in the company's recent earnings conference call, much of that growth today is coming from small markets like automotive lighting. But down the road, it will be driven by broader adoption of consumer OLED lighting applications and offer the company a massive source of incremental growth.
"With the development and commercialization of OLEDs accelerating in the consumer electronics market and OLED lighting starting to enter niche commercial markets[...], we are further strengthening our competitive might," said Universal Display CEO Steve Abramson. "We're developing new OLED technologies and next-generation materials, and continue to leverage and expand our first-mover leadership position."
Capital returns will be much, much larger
As it stands, we're already talking about a solidly profitable, cash-rich business that pays a modest $0.10-per-share quarterly dividend yielding around 0.26% annually at today's prices. But Universal Display only just initiated that dividend in early 2017 at $0.03 per share. Management called it a "good place to start," and just as they've done several times in the two years since, pledged to increase their payout as the business continues to gain scale.
As Universal Display's growth continues to materialize over the next decade, patient investors can safely expect the size of their quarterly dividend checks to follow suit. Coupled with the stock's natural share-price appreciation in that time, I think long-term shareholders who buy today will be more than pleased with the end result.
