Universal Display: Samsung Deal Nice, Still Need to Hear Year Outlook, Says Gabelli

The announcement by organic light-emitting diode technology maker Universal Display (OLED) that it has inked a deal with Samsung Electronics’s (005930KS) display unit, its biggest customers, is a positive, but not all the company needs, according to a note this morning from Hendi Susanto of Gabelli & Co.

Susanto, who rates Universal shares a Hold, writes that the development is “positive, as there was a bearish sentiment about whether or not a renewal of prior agreements would take place.” That echoes comments yesterday from Evercore ISI’s CJ Muse.

The deal, writes Susanto, “underscores and validates” the company’s “vast intellectual property."

However, the outlook for the company’s 2018 sales is still very important, writes Susanto:

We still view 2018 annual revenue guidance of great importance as investors will measure the magnitude of material sales growth and the growth trajectory of royalty and licensing fees, including Samsung’s license agreement. We believe management will take a prudent approach and share conservative guidance in-line with our expectations […] We believe the key drivers of OLED display in 2018 are Samsung, Apple, LG, and BOE. New capacity of OLED display production by existing players will take time to ramp up in 2018. Similarly, new OLED display producers will require time to ramp up its production capacity and production yield. Market adoption by Apple is a great demand driver in the OLED display market. The race to be the second supplier of OLED Displays for Apple will continue. We see LG and BOE as the next potential suppliers. There is a speculation that Apple may expand its OLED display adoption to two iPhone models in its next iteration. There may be limited visibility into OLED display production in the second-half of 2018.

Universal is set to report results, and give its outlook, a week from today, February 22nd.

Shares of Universal today are up 55 cents at $159.70, after running up 9% yesterday.

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