Universal Display (OLED) is trading sharply higher today (+20%) after reporting Q4 results that were well above market expectations. The company also initiated the payment of a quarterly dividend for the first time ever. It's not much at $0.03 per share but it shows that management is taking steps to return some its cash war chest to shareholders.
Since you may not be familiar with universal Display, a little background would help. The company specializes in what's known as organic light emitting diode (OLED) technology for the display and lighting industries. Universal Display licenses its technology to makers of TVs and consumer electronic devices.
The idea behind OLED technology is that it can overcome limitations in LCDs, such as poor image and color quality. Specifically, the company believes its high-efficiency UniversalPHOLED phosphorescent OLED technology is a breakthrough as it can enable the development of low power and eco-friendly displays and white lighting.
Turning to the Q4 results, EPS jumped 41% YoY to $0.55 from $0.39 in the prior year period. Revenue rose 19.7% year/year to $74.6 mln. Both results were well above market expectations. In terms of 2017 guidance, OLED expects revenue of $230-250 mln, in-line with market expectations.
Probably the most impressive metric with OLED is its margins. In Q4, the company posted adjusted operating margin of 47%, up from 43% in the prior year period. Adjusted net margin improved to 35% from 29% last year. Those are some big margins. A big reason they are so robust is that OLED is a licensor of its OLED technology to manufacturers. Licensing revenue is very high margin as you basically collect a royalty stream and you don't have any manufacturing costs.
In terms of the Q4 highlights: total emitter sales increased 25% sequentially, the adoption of next-generation emitters began, and with the robust activity for new UniversalPHOLED materials in the pipeline, the company embarked on its next expansion phase with PPG Industries to double its phosphorescent emitter production capacity.
In sum, this was a really good quarter for OLED and it sounds like OLED technology is really coming on in the industry. This stock tends to be volatile around earnings, partly because they do not guide on a quarterly basis so analysts are a bit in the dark quarter-to-quarter. But this was a good one for OLED.
In addition to earnings, investors are happy to see OLED finally start paying a dividend for the first time ever. At $0.03 per share, it's tiny, but it's more the sentiment. Management is throwing a bone to those investors who have been clamoring that OLED dish out some its huge cash balance back to shareholders. Specifically, OLED has roughly $343 mln in cash/investments, or $7.29 per share, with no long term debt. It's good to see some money getting returned. Another benefit to having a dividend is that some funds are limited to investing only in stocks that have a dividend so this opens the door for those funds to perhaps buy the stock.