NETGEAR, Inc.

NTGR Details

NETGEAR, Inc. (NASDAQ: NTGR) offers high-performance networking technologies and internet-connected products to consumers, corporates, and service providers. Its operating segments are 1) Connected Home, which provides Wi-Fi internet networking services, including Wi-Fi mesh systems, routers, smart devices, subscription services, etc., and 2) Small and Medium Businesses (SMB), offering business networking, LAN, security solutions, and cloud-based services at a low price.

Latest News:

• Recent Launch: The Insight Managed Tri-band AXE7800 Wireless Access Point, the first tri-band, business-grade WiFi 6E solution with cloud management for small and medium businesses, was announced by NTGR on February 24, 2022. (SMBs). NETGEAR's most recent offering has become one of the most potent WiFi solutions for SMBs worldwide, thanks to the addition of WiFi 6E.

FY21 Results:

• Decline in Topline: The company's net revenue declined 6.94% YoY to USD 1.17 million in FY21 (ended December 31, 2021) compared to USD 1.26 billion in FY20, attributable to a 15.29% decline in sales from the Connected Home business.
• Reduction in Bottomline: Net income for FY21 was USD 49.39 million, down 15.28% from USD 58.29 million in FY20.
• Healthy Balance Sheet: The company had USD 271.52 million in cash and cash equivalents (including short-term investments) as of December 31, 2021, and no outstanding debt.

Key Risk:

• Supplier Concentration Risk: NTGR relies on a small number of vendors for its critical manufacturing component. Furthermore, most of the semiconductors used in its products are supplied by a single vendor. As a result, any delays in obtaining the required amount and unfavourable pricing may have an impact on the company's output and profitability.
• Customer Concentration Risk: Traditional and online retailers and service providers account for most of NTGR's revenue (Best Buy Co., Inc., Amazon.com, Inc., Ingram Micro, Inc., Tech Data Corporation). As a result, losing any of the company's significant clients could harm its bottom line.

Outlook:

• Q1FY22 Guidance : As of FY21, NTGR expects to clock net revenue of USD 225 – 240 million in Q1FY22, with an operating margin of -1.5% to -0.5% and 1.0% to 2.0% on GAAP and non-GAAP basis, respectively.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:             

NTGR's stock price has fallen 36.38% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 22.86 to USD 44.00. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 30.00.

Considering the significant correction in the stock price, recent product launches, robust balance sheet, associated risks, and current valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 24.45, down 0.97% as of March 21, 2022.

Three-Year Technical Price Chart (March 21, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.