Universal Display Stock: Bullish Update With Multiple Tailwinds (NASDAQ:OLED)

Universal Display (NASDAQ:OLED) is an overlooked information technology firm, whose average trading volume is around 270,000 a day. In the year after calling the company a buy before 2024, shares are up by ~65%. This outperformed the S&P 500, which rose ~17%.

What, if anything, changed in that time?

Q2/2023 Earnings and Outlook

On Aug. 3, 2023, Universal Display posted revenue growing by 7.3% Y/Y to $146.6 million. Revenue from material sales along with royalty and licensing fees contributed to the growth. This allowed the firm to increase the lower end of its previous revenue guidance. The company expects revenue will be between $560 million to $600 million.

Momentum from Q2 will continue into the second half of the year. In 2024, the OLED industry will be in a position of promising growth, as expected from last year’s outlook. The OLED adoption cycle in the IT sector is on the cusp of starting, according to President and CEO Steven Abramson.

Tablet and laptop panels are examples of OLED usage. If panel display demand grows by 34% CAGR by 2030, then Universal Display’s unfavorable valuation (discussed further below) will prove temporary. The company has a strong moat with displays. It spent almost 30 years discovering OLED solutions and applying them to products for its customers.

Analysts are upbeat on OLED’s upcoming earnings. Five analysts revised their earnings per share estimates. The average EPS GAAP estimate is $1.05.

In the chart below, the company consistently beat analyst expectations:

2024 Opportunities

Universal Display has multiple opportunities. Next year, the company expects to introduce all of its phosphorescent RGB stacks into the commercial market. This would expand Universal Display’s total addressable market. It will unlock more opportunities for higher energy efficiency and performance solutions for a wide range of OLED applications. In May 2023, the firm showcased phosphorescent OLED (or PHOLED) and organic vapor jet printing (“OVJP”). This affirms the company’s moat in offering narrow spectral emission with high energy efficiency.

The company achieved a fully printed high-resolution RGB side-by-side PHOLED start. This is an alternative to vacuum thermal evaporation. It results in such features as vibrant colors, long operating lifetimes, and thermal stability in manufacturing usage. Universal Display positions OVJP as a complete solution for OLED TVs.

In the smartphone market, foldable devices are another opportunity for Universal Display. Should foldable smartphones quadruple in shipments to 55 million by 2025, according to Counterpoint Research, the company will realize significant revenue growth. In addition, Rollable screens have been a longtime goal of the company. This adds to the company’s growth prospects.

Conference Call Takeaways

Universal Display reported approximately $2.4 million in sales for the blue emitter and host (albeit mostly emitter). CFO Brian Millard expects that in 2024, the company will be on track to have commercial material available. Still, revenue is variable until it is in the commercialization phase.

Gross margin guidance is a solid 65% or more. This suggests an increase in the back half of the year, thanks to an increase in volumes and revenue. The CFO expects to achieve operating leverage for the second half. In addition, Universal Display added new customers in the second quarter, including those in China. Readers may infer that the company may win more customers. This would lead to strong guidance for the upcoming fiscal year.

Customers indicated a strong forecast ahead. Those strong demand signals are consistent with the business momentum experienced throughout 2023.

Related Investments

In the last year, Universal Display outperformed Qorvo (QRVO) and Macom (MTSI). Rated a buy last year, MTSI stock is up 46% in that time and up 52.3% in the last year:

Qorvo shares peaked at $110. Selling accelerated after the summer rally because markets were worried about the China smartphone substitution risk. A Citi analyst downgraded Skyworks (SKWS), too, while maintaining a buy on Nvidia (NVDA) and Marvell Technology (MRVL).

OLED stock scores a strong buy, compared to a hold rating with QRVO and MTSI stock.

Despite mixed grades, OLED stock’s rating improved on Oct. 10, 2023.

Your Takeaway

Universal Display’s prospects improved since the last time I rated the stock a buy. It remains a strong buy before 2024. It has multiple tailwinds that are accelerating as the use cases for OLED increase. Market participants might apply selling pressure on OLED stock, reasoned by overvaluation concerns. This only creates a better entry point (buy zone) for readers who did not buy the stock last year.