This consumer electronics company is forecasted to grow at an annual rate of 15% over the next five years. The shares look undervalued, with a P/E of 17.82.
Universal Electronics Inc. (UEIC)
From Cabot Undervalued Stocks Advisor
Universal Electronics is a major producer of universal remote controls that subscription broadcasters (cable and satellite), TV/set top box/audio manufacturers and others provide to their customers. The company pioneered the universal remote, named the ‘One for All’, which was quickly adopted by consumers after its launch in 1986. Since then, the company has expanded into a range of remote control devices for smart homes, safety and security and other residential and commercial applications, driven by its proprietary technology. The company has a global roster of customers, with about 40% of sales produced outside the United States. Comcast is a 10%+ customer and they hold warrants for up to 5% of Universal’s shares.
For UEIC shares to start a sustained move upward, their revenues need to stop declining and turn (even if slightly) positive. While expanding profit margins help, the shares aren’t cheap enough for this to make much of a difference yet.
Stable/rising revenues could come from a recovery in net cable subscriptions, particularly upon the return of live sports (a major driver of new subscriptions) or when in-home installations resume. Another source of revenue growth may come from upgraded products that allow better control of set top boxes that manage a wide range of media including cable, Netflix/etc., and other digital technologies. Also, the company is expanding into Alexa-like home devices which could boost revenue growth.
UEIC shares held roughly flat in the market downturn, falling only about 2% in the past week but having an up day yesterday in an ugly tape. However, the slide generally continues following the ongoing lack of resolution to its revenue growth issues, combined with the tech sell-off. The shares appear to be approaching support at 38. UEIC shares have 17% upside to our 47 price target. We are patient for now with UEIC shares because of the larger opportunity set on the horizon, potential for better results in the third and/or fourth quarter, and the relatively low valuation.
UEIC shares trade at 11.2x estimated 2020 earnings of $3.57 and 9.3x estimated 2021 earnings of 4.31. The estimates appear to have bottomed out. BUY.
Bruce Kaser, Cabot Undervalued Stocks Advisor,cabotwealth.com, 978-745-5532, September 16, 2020