Rating Update: Stock Rating A-Highest (9/27/19)-Universal Electronics Inc (UEIC).

out_logo_500#21885.jpg

BUSINESS

Universal Electronics Inc. develops and manufactures pre-programmed and universal control products, audio-video (AV) accessories, software and intelligent wireless security products, and sensing and automation components for home entertainment and automation systems. The company offers universal infrared and radio frequency (RF) remote controls; integrated circuits on which its software and universal device control database is embedded; and software, firmware, and technology solutions that enable devices, including televisions, set-top boxes, audio systems, smartphones, tablets, game controllers, and other consumer electronic devices to wirelessly connect and interact with home networks, as well as interactive services to control and deliver digital entertainment and information.
out_plist#21885.jpg

INVESTMENT RATING

out_map1#21885.jpg

UEIC’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.

UEIC has a current Value Trend Rating of A (Highest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing complementary signals. UEIC has a slightly positive Appreciation Score of 64 and a very high Power Rating of 92, resulting in the Highest Value Trend Rating.

UEIC’s stock is selling well below targeted value. The current stock price of $50.95 compares to targeted value 12 months forward of $76.
This moderately high appreciation potential results in an appreciation score of 64 (only 36% of the universe has greater appreciation potential.)
out_pt#21885.jpg

UEIC has a Power Rating of 92. (This very high Power Rating indicates that UEIC has a better chance of achieving attractive investment performance over the near to intermediate term than all but 8% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; and the recent trend in UEIC’s earnings estimates has been extremely favorable. An offsetting factor is is currently in an unfavorable positi.

INVESTMENT PROFILE

UEIC’s financial strength is average. Financial strength rating is 53.
out_pfit1#21885.jpg

Relative to the S&P 500 Composite, Universal Electronics Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that UEIC is normal risk. Relative weaknesses include: low historical profitability, low financial strength, and low historical growth. UEIC’s valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. UEIC has unusually low market capitalization.

CURRENT SIGNALS

UEIC’s current operations are eroding. Return on equity is falling.

UEIC’s current technical position is very strong. The stock price is in a 9.3 month up move. The stock has appreciated 108.2% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

ALERTS

The stock is currently rated A.
Universal Electronics Inc (NASDAQ: UEIC) stock closed at $3.45 on 9/27/19 after a major increase of 15.8%. However, this advance was accompanied by exceptionally low trading volume at 48% of normal. Relative to the market the stock has been exceptionally strong over the last nine months and has risen 6.1% during the last week.

CASH FLOW

In 2018, UEIC experienced a significant decline in cash of -$14.13 million (-21%). Sources of cash were lower than uses. Cash generated from 2018 EBITDA totalled +$45.07 million. Non-operating sources contributed +$19.70 million (+44% of EBITDA). Cash taxes consumed -$17.73 million (-39% of EBITDA). Re-investment in the business amounted to -$17.15 million (-38% of EBITDA). On a net basis, debt investors removed -$41.50 million (-92% of EBITDA) while equity investors received -$2.51 million (-6% of EBITDA).
out_cflow.1#21885.jpg

UEIC’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Universal Electronics Inc Peer Group. In most years, UEIC was in the third quartile and top quartile. Currently, UEIC is upper quartile at +44% of EBITDA (+$19.70 million).

UEIC’s Cash Taxes, %EBITDA experienced a strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Universal Electronics Inc Peer Group. (Since 2016 Cash Taxes, %EBITDA has accelerated very sharply.) In most years, UEIC was in the second quartile and top quartile. Currently, UEIC is lower quartile at -39% of EBITDA (-$17.73 million).

UEIC’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Universal Electronics Inc Peer Group. In most years, UEIC was in the second quartile and top quartile. Currently, UEIC is slightly above median at -38% of EBITDA (-$17.15 million).

UEIC’s Debt Investors, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Universal Electronics Inc Peer Group as well. In most years, UEIC was in the top quartile and lower quartile. Currently, UEIC is lower quartile at -92% of EBITDA (-$41.50 million).

UEIC’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Universal Electronics Inc Peer Group. In most years, UEIC was in the second quartile and top quartile. Currently, UEIC is above median at -6% of EBITDA (-$2.51 million).

UEIC’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Universal Electronics Inc Peer Group. In most years, UEIC was in the top quartile and lower quartile. Currently, UEIC is substantially below median at -31% of EBITDA (-$14.13 million).
out_cflow.2#21885.jpg

UEIC’s Cash, %Revenue has experienced a small downtrend over the period. This downtrend was accompanied by stability for the Universal Electronics Inc Peer Group. In most years, UEIC was in the top quartile and second quartile. Currently, UEIC is substantially above median at +8%.

PROFITABILITY

UEIC’s return on equity has eroded very significantly since 2009.
UEIC’s very strong negative trend in pretax operating return significantly augmented by a very strong negative trend in non-operating factors is a significant analytical factor.
The productivity of UEIC’s assets rose over the full period 2009-2019: asset turnover has exhibited a volatile overall uptrend.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
out_dpgrfs3#21885.jpg

UEIC’s return on equity is lower quartile (-6.2%) for the four quarters ended June, 2019.
out_dpgrfs3.2#21885.jpg
Operating performance (pretax return on assets) is lower quartile (-0.5%) reflecting asset turnover that is at the upper quartile (1.26X) and lower quartile pretax margin (-0.4%).
Tax “keep” rate (income tax management) is upper quartile (608.6%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is above median (2.22X).

GROWTH RATES

Overall, Universal Electronics’ growth rate has slowed considerably in recent years.
Universal Electronics’ historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.

Annual revenue growth has been 9.1% per year.

Total asset growth has been 8.5% per year.

Annual E.P.S. growth has been 5.7% per year.

Equity growth has been 3.7% per year. (More recently it has been -0.4%.)

Universal Electronics’ consensus growth rate forecast (average of Wall Street analysts) is 13.5% — substantially above the average of the historical growth measures.
out_growthgrf#21885.jpg

Relative to the Universal Electronics Inc Peer Group, UEIC’s historical growth measures are generally top quartile. Revenue growth (9.1%) has been upper quartile. E.P.S. growth (5.7%) has been upper quartile. Total asset growth (8.5%) has been at the upper quartile. Equity growth (3.7%) has been substantially below median.

In agreement with this pattern, consensus growth forecast (13.5%) is at the lower quartile.
out_growthgrf.2#21885.jpg

PRICE HISTORY

Over the full time period, Universal Electronics’ stock price performance has been variable and in line with the market. Between November, 2008 and September, 2019, Universal Electronics’ stock price rose +207%; relative to the market, this was a -7% loss. Significant price moves during the period: 1) December, 2018 – September, 2019: +102%; 2) July, 2016 – May, 2018: -62%; 3) July, 2012 – December, 2014: +417%; and 4) January, 2009 – January, 2010: +111%.
out_price#21885.jpg

TOTAL INVESTMENT RETURNS

Current annual total return performance of 22.5% is at the upper quartile relative to the S&P 500 Composite.
In addition to being at the upper quartile relative to S&P 500 Composite, current annual total return performance through July, 2019 of 22.5% is at the upper quartile relative to Universal Electronics Inc Peer Group.

Current 5-year total return performance of -2.1% is lower quartile relative to the S&P 500 Composite.
Through July, 2019, with lower quartile current 5-year total return of -2.1% relative to S&P 500 Composite, UEIC’s total return performance is below median relative to Universal Electronics Inc Peer Group.
out_quartret#21885.jpg

VALUATION BENCHMARKS

Relative to S&P 500 Composite, UEIC’s overall valuation is normal. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is upper quartile. Ratio of enterprise value/assets is below median. Price/equity ratio is below median. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable.

Relative to Universal Electronics Inc Peer Group, UEIC’s overall valuation is exceptionally high. The highest factor, the ratio of enterprise value/earnings before interest and taxes, is upper quartile. Price/equity ratio is upper quartile. Ratio of enterprise value/assets is upper quartile. Ratio of enterprise value/revenue is at the upper quartile. Price/earnings ratio is unavailable.
out_tradv#21885.jpg

UEIC has a minor value gap compared to the median valuation. For UEIC to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 1.06X to 0.99X. If UEIC’s ratio of enterprise value/revenue were to fall to 0.99X, its stock price would be lower by $-4 to $47.
For UEIC to fall to lower quartile valuation relative to the Universal Electronics Inc Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.06X to 0.82X. If UEIC’s ratio of enterprise value/revenue were to fall to 0.82X, its stock price would decline by $-13 from the current level of $51.

VALUE TARGETS

UEIC’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
Universal Electronics’ current Price Target of $77 represents a +51% change from the current price of $50.95.
This moderately high appreciation potential results in an appreciation score of 64 (only 36% of the universe has greater appreciation potential.)
Reinforcing this moderately high Appreciation Score of 64, the high Power Rating of 92 contributes to an Value Trend Rating of A.
out_vc#21885.jpg

Universal Electronics’ current Price Target is $77 (+36% from the 2018 Target of $57 and +51% from the 09/27/19 price of $50.95). This dramatic rise in the Target is the result of a +9% increase in the equity base and a +25% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple. The forecasted flat growth has no impact. The forecasted increase in cost of equity has a very large negative impact.
out_wc.1#21885.jpg
out_wc.2#21885.jpg

PTR’s return on equity forecast is 19.3% — above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2010 and 2018. The current forecast is significantly above the 2012 low of 9%.

PTR’s growth forecast is 6.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, steady decline between 2010 and 2018. The current forecast is well below the 2012 peak of 12%.

PTR’s cost of equity forecast is 8.5% — in line with recent levels. Forecasted cost of equity exhibited a modest, variable increase between 2010 and 2018. The current forecast is steady at the 2010 low of 6.7%.
out_vc.2#21885.jpg
At Universal Electronics’ current price of $50.95, investors are placing a positive value of $16 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 6.0% per year, and a return on equity of 13.8% versus a cost of equity of 7.2%.
PTR’s 2020 Price Target of $77 is based on these forecasts and reflects an estimated value of existing assets of $50 and a value of future investments of $27.

About John Lafferty 52821 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.