Ubiquiti Networks Upgraded to Strong Buy - Analyst Blog

On May 13, Zacks Investment Research upgraded Ubiquiti Networks Inc. UBNT to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Ubiquiti Networks has a strong balance sheet and generates substantial cash flow. In the last reported quarter, the company witnessed a surge in both top and bottom lines, driven by higher revenues across its businesses and regions. In addition, the company's strong performance in the Enterprise Technology segment was one of the catalysts driving the stock.

Ubiquiti Networks recently reported strong third-quarter fiscal 2014 results with non-GAAP earnings of 50 cents per share surpassing the Zacks Consensus Estimate of 48 cents by 4.2%. Moreover, this well-known wireless equipment provider delivered positive earnings surprises in the last 4 quarters with an average beat of 10.7%. The long-term expected earnings growth rate for this stock is 26.6%.

Revenues also surged a robust 78.2%, due to increased transaction volumes and addition of new services for existing customers.

In addition, Ubiquiti Networks maintains a sound and flexible balance sheet with ample liquidity that enables it to capitalize on potential acquisition opportunities to fuel its top-line growth. The company had around $292 million in cash and cash equivalents at the end of the last reported quarter.

Development in the company's core business primarily drove the earnings. Ubiquiti's consistent focus on expanding services by increasing investments in innovation and development was a key growth driver. Management's operational abilities and opportunities in the enterprise business also contributed to the strong results. Its differentiated business model enabled it to counter traditional barriers such as high product and network deployment costs by offering solutions with disruptive price-performance characteristics.

Estimate Revisions

Over the last 7 days, there were no upward or downward revisions in the earnings estimates for 2014. Although there is a dearth of estimate revisions, we envision an uptrend for the stock backed by its strong growth potential.

Other Stocks to Consider

Other stocks in the wireless equipment market worth considering are ShoreTel, Inc. SHOR, Juniper Networks Inc. JNPR and Nokia Corp. NOK. While ShoreTel sports a Zacks Rank #1 (Strong Buy), Juniper Networks and Nokia carry a Zacks Rank #2 (Buy).