Phosphorescent Blue Materials And Expanding OLED Adoption Will Shape Future Markets

Key Takeaways

• Growth in OLED markets through increased device adoption and expanded production is expected to drive future revenue.
  
• Innovations in phosphorescent blue materials and strategic R&D initiatives aim to enhance revenue and improve product margins.
  
• Economic uncertainties and delayed product innovations may lead to volatility in earnings and potential revenue growth challenges.

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 in the United States and internationally.

• Expansion in the OLED market, driven by growth in OLED AR/VR devices, smart watches, smartphones, IT, automotive, and TVs, is expected to contribute to future revenue growth as device adoption increases.
  
• Investments in new OLED production facilities, such as Visionox's and Samsung Display's significant capital expenditures in OLED manufacturing capacities, are expected to increase supply capability and drive revenue.
  
• Development and future commercialization of phosphorescent blue emissive materials, which offers significant industry benefits, are anticipated to positively impact future revenue and earnings.
  
• Strategic research and development initiatives and customer collaborations aim to drive innovation and improve product offerings, likely enhancing revenue and improving margins through advanced materials and technology.
  
• Significant investments are being made in the mid-sized OLED segment, such as for IT and automotive applications, projected to contribute to revenue increases as these nascent markets expand and develop.

Universal Display Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Universal Display's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.9% today to 36.4% in 3 years time.
• Analysts expect earnings to reach $359.0 million (and earnings per share of $8.28) by about December 2027, up from $237.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $283.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.5x on those 2027 earnings, up from 32.2x today. This future PE is greater than the current PE for the US Semiconductor industry at 32.1x.
• Analysts expect the number of shares outstanding to decline by 2.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Universal Display Future Earnings Per Share Growth

Risks

• The company's revenue forecast for 2024 has been revised downward due to lower customer forecasts for Q4, indicating potential weak demand and impact on future revenue growth.
  
• Material sales, an important revenue source, have decreased compared to the previous year’s quarter, which could negatively affect net margins if the trend continues.
  
• There is uncertainty around the timing of commercial availability and adoption of the company's phosphorescent blue material, which could delay potential revenue gains from this innovation.
  
• Inventory adjustments and changes in customer purchasing patterns signal potential volatility in near-term earnings, reflecting supply chain or demand-side issues.
  
• Economic conditions and consumer sentiment in certain global markets may negatively impact customer orders, leading to possible revenue fluctuations or reductions.

Valuation

• The analysts have a consensus price target of $215.66 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 $260.0, and the most bearish reporting a price target of just $165.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $985.2 million, earnings will come to $359.0 million, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 8.0%.
• Given the current share price of $161.1, the analyst's price target of $215.66 is 25.3% 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.