Phosphorescent Blue Commercialization Will Improve OLED Efficiency By Up To 25%

Key Takeaways

• Anticipated phosphorescent blue commercialization and increased OLED usage in various markets could significantly boost demand and revenue.
  
• Substantial investments in new OLED capacity and market vertical development could drive long-term revenue growth and enhance earnings potential.
  
• Delays in new technology, currency losses, global economic uncertainty, and rising competition could hinder revenue growth and impact net margins.

Catalysts

Engages in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for use in display and solid-state lighting applications.

• The anticipated commercialization of phosphorescent blue could significantly enhance OLED technology, potentially increasing OLED display energy efficiency by up to 25%. This can lead to higher revenues and market demand as consumer devices adopt more efficient OLED panels.
  
• The proliferation of OLED usage in various markets such as smartphones, IT, automotive, and TVs is expected to drive increased demand, potentially boosting Universal Display's revenue as the OLED market expands.
  
• New multiyear capital expenditure (CapEx) cycles have begun, with substantial investments in new OLED capacity from major players like Samsung, BOE, and Visionox. This could lead to long-term revenue growth opportunities as capacity increases.
  
• The development and exploration of new market verticals through the OVJP technology, particularly focusing on the medium area IT market, could open new revenue streams and enhance earnings potential.
  
• The expectation of an increase in year-end 2025 installed OLED capacity by approximately 10% over year-end 2023, supported by significant investments in new Gen-8.6 fabs, suggests growth in production capabilities that could positively impact revenue in forthcoming years.

Universal Display Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Universal Display's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 34.2% today to 33.6% in 3 years time.
• Analysts expect earnings to reach $303.5 million (and earnings per share of $6.43) by about March 2028, up from $221.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 37.1x on those 2028 earnings, up from 33.5x today. This future PE is greater than the current PE for the US Semiconductor industry at 29.4x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.49%, as per the Simply Wall St company report.

Universal Display Future Earnings Per Share Growth

Risks

• The delay in the commercialization of phosphorescent blue emitters may negatively impact anticipated revenues and delay potential growth in net margins due to slower adoption in the OLED market.
  
• Foreign currency exchange losses, such as those noted with the Korean Won, could adversely affect net income and lead to volatility in earnings per share.
  
• Uncertainty in global economic conditions and potential tariff impacts on international trade could affect revenue growth and lead to increased operating costs, reducing net margins.
  
• The softness in consumer electronics demand, particularly in uncertain macroeconomic environments, might dampen revenue growth expectations and affect overall earnings.
  
• Competition from emerging local Chinese material suppliers could pressure market share and revenues, potentially influencing profitability and net margins.

Valuation

• The analysts have a consensus price target of $187.422 for Universal Display based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $220.0, and the most bearish reporting a price target of just $160.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $902.7 million, earnings will come to $303.5 million, and it would be trading on a PE ratio of 37.1x, assuming you use a discount rate of 8.5%.
• Given the current share price of $156.41, the analyst price target of $187.42 is 16.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.