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Ubiquiti Shares Up 90.3% YTD: What's Driving the Rally?

Zacks Equity Research

Shares of Ubiquiti Inc. UI have rallied 90.3% so far this year. The company has significantly outperformed its industry’s growth of 23.5% over the same time frame.



The Zacks Rank #1 (Strong Buy) stock, with a market cap of nearly $12.3 billion, has impressed investors with its recent earnings streak. It topped estimates thrice in the trailing four quarters, the positive surprise being 16.1%, on average. It has a long-term earnings growth expectation of 9.4%.

We believe that the computer networking company has several growth drivers in place and enjoys a robust foothold in its served markets. These should help it maintain momentum in the quarters ahead.

Growth Drivers

Ubiquiti’s excellent business model, which is flexible to evolving changes in markets, helps it steer challenges and maximize growth. It has been focusing on democratizing network technology on a global scale. The company upgraded the UniFi ecosystem, which includes hotspot analytics and high-density WLAN improvements, and added new features to the AmpliFi product family.

The company’s strategic product launches at disruptive prices help it outdo rivals to a great extent. Its operating model is backed by a rapidly growing and highly engaged community of service providers, distributors, value-added resellers, systems integrators and corporate IT professionals (referred to as the Ubiquiti Community).

Reduction of labor costs also remains one of the chief highlights of its R&D activities. Ubiquiti believes that its investments in R&D, inventory and operations management will help expand addressable market and strengthen its dominant foothold in the industry. The company’s Enterprise Technology segment sales continue its momentum on the back of solid demand for UniFi products.

The company’s global market share in Enterprise Technology is likely to grow on the back of increasing adoption of switches, security gateways, cameras and other complementary products. Ubiquiti expects its new product line to help increase average selling price for high performance, best value products, thereby benefiting the top line.

Trend in Estimate Revisions

The Zacks Consensus Estimate for Ubiquiti’s current-year earnings has been revised 4.9% upward over the past 60 days from $5.52 to $5.79. Also, over the same time frame, the consensus estimate for its next-year earnings has been revised 1.2% upward to $6.14.

Upbeat Fiscal Q1 Performance

Ubiquiti delivered solid first-quarter fiscal 2020 results, wherein both the bottom line and the top line beat the respective Zacks Consensus Estimate and increased year over year. Notably, the company registered record revenues and GAAP earnings per share.

On a GAAP basis, net income was $98.1 million or $1.43 per share compared with $85.7 million or $1.16 per share in the prior-year quarter. Non-GAAP net income came in at $98.7 million or $1.44 per share compared with $86.2 million or $1.17 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 16 cents.

Revenues increased 14.3% year over year to $323.3 million backed by higher sales of service provider technology and enterprise technology products. The top line surpassed the consensus estimate of $299 million.

Ubiquiti remains committed toward enhancing the value of its shareholders. During first-quarter fiscal 2020, it repurchased 3,635,534 shares at an average price of $114.49 per share. It bought back an additional 995,495 shares at an average price of $120.11 subsequent to September end. Further, the company has initiated a new stock repurchase program to buy back up to $200 million worth of shares.

Key Picks

Other top-ranked stocks in the industry include Qualcomm Incorporated QCOM, InterDigital, Inc. IDCC and PCTEL, Inc. PCTI. While Qualcomm sports a Zacks Rank #1, InterDigital and PCTEL carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Qualcomm has a long-term earnings growth expectation of 14%.   

InterDigital has a long-term earnings growth expectation of 15%.   

PCTEL surpassed earnings estimates in each of the trailing four quarters, the beat being 150.6%, on average.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
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