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 WiFi internet networking services, including WiFi 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. As of January 21, 2022, the company's market capitalization stood at USD 802.45 million.

Latest News:

• Recent Launches: On January 03, 2022, NTGR unveiled new business networking products, just in time for the Consumer Electronics Show (CES). It launched Orbi Pro Mesh System and Ultra60 PoE Multi-Gigabit Ethernet Plus Switch to provide small and medium business customers with next-level coverage, speed, and security.

Concurrently, NTGR added a new router to its WiFi 6E lineup; The Nighthawk RAXE300 Tri-band WiFi 6E Router builds on the success of the Nighthawk RAXE500 by delivering speeds up to 7.8Gbps while utilizing the new era of fast connectivity on the 6Ghz band, which is free of interference and congestion.

It also launched NETGEAR Game Booster, a feature-packed service that gives Orbi users access to the tools featured on Nighthawk Pro Gaming routers to improve network performance and reduce lag for the ideal gaming experience.

Q3FY21 Results:

• Fall in Topline: The company's net revenue fell 23.36% to USD 290.15 million in Q3FY21 (ended October 03, 2021) compared to USD 378.11 million in Q3FY20 (ended September 27, 2020), attributable to a 34.16% decline in sales from the Connected Home business.
• Reduction in Bottomline: Net income for Q3FY21 was USD 9.58 million, down 62.47% from USD 25.54 million in Q3FY20.
• Healthy Balance Sheet: The company had USD 292.20 million in cash and cash equivalents (including short-term investments) as of October 03, 2021, and no outstanding debt.

Key Risks:

• Supplier Concentration Risk: NTGR relies on a small number of vendors for its crucial manufacturing component. Furthermore, most of the semiconductors used in its products are sourced from a single source. As a result, any delay in obtaining the necessary quantity or unfavourable pricing could affect the company's output and finances.
• Customer Concentration Risk: Traditional and online stores (Best Buy Co., Inc., Amazon.com, Inc., Ingram Micro, Inc., Tech Data Corporation) and service providers account for most of NTGR's revenue. As a result, losing any of its key customers could harm its bottom line.

Outlook:

• Q4FY21 Outlook: As of Q3FY21, NTGR anticipates its Q4FY21 total revenue to range between USD 250 – 265 million, with an operating margin of -0.5% to 0.5% and 2.0% to 3.0% on GAAP and non-GAAP basis, respectively. It also expects an 80.0% GAAP tax rate in Q4FY21.

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 NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NTGR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

NTGR's stock price has fallen 28.06% in the past nine months and is currently leaning towards the lower band of its 52-week range of USD 26.07 to USD 46.38. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 31.92. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 33.58.

Considering the significant correction in the stock price in the past nine months, new product launches, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 27.02, down 1.46% as of January 21, 2022.             

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Ultralife Corporation

ULBI Details

Ultralife Corporation (NASDAQ: ULBI) is a global provider of power solutions, communications and electronics systems, and other services to the government, defense, and commercial sectors. It manufactures rechargeable and non-rechargeable batteries, charging systems, electronic systems and accessories, and custom-built systems such as RF amplifiers, power supply, cable and connector assemblies, amplified speakers, and so on. As of January 21, 2022, the company's market capitalization stood at USD 87.64 million.

Latest News:

• Acquisition of Excell: ULBI stated on December 14, 2021, that it had acquired all outstanding shares of Excell Battery Group (Excell), an independent designer and manufacturer of high-performance smart battery systems, for USD 23.5 million in cash, subject to standard working capital and net cash adjustments.

Q3FY21 Results:

• Reduction in Revenue: Total revenue fell 10.68% to USD 21.76 million in Q3FY21 (ended September 30, 2021) from USD 24.36 million in Q3FY20, mainly due to fewer government/defense sales during the period.
• Incurring Net Loss: Its net loss in Q3FY21 was USD 0.59 million, compared to a net income of USD 0.41 million in Q3FY20.
• Strong Balance Sheet: ULBI ended the quarter with a cash position of USD 15.85 million and total debt of USD 0.25 million.

Key Risks:

• Concentrated Customer Group: In FY20, ULBI's top two clients, L3Harris Technologies and Thales Defense & Security, Inc., accounted for 17% and 6% of total revenue, respectively. As a result, losing any of these critical consumers could jeopardize the company's financial success.
• Dependence on the US and Foreign Military: In FY20, sales to the US and international armies and related agencies accounted for 42% of ULBI's overall income. As a result, any adverse budget and appropriation decisions made by governments may harm the company's bottom line.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

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

ULBI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

ULBI's stock price has declined 35.63% in the past six months and is currently leaning towards the lower band of its 52-week range of USD 4.92 to USD 11.78. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 30.48. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 6.67.

Considering the significant correction in the stock price, negligible debt, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 5.31, down 2.57% as of January 21, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.