Universal Electronics Get Upgrade After Earnings, Acquisition

Universal Electronics

reported revenues of $79 million, below the street and its estimate of $82 million. Pro-forma EPS was in-line with the street and our estimate of $0.34. UEIC announced they would acquire a Chinese peer, which they expect to be largely accretive and drives guidance well above our expectations. While integration remains a key risk, we think the terms of the deal prove attractive enough to merit a Buy rating. The company acquired Chinese remote control manufacturer CG International for $110 million. Management said they will pay for the acquisition with $96 million in cash and 1.46 million shares. The company noted that the acquisition will add "at least" $140 million in sales, $20 million in operating profit and $1.00 to EPS in 2011. CG will provide UEI with greater manufacturing capabilities and extend their reach to customers in Asia. Our valuation is based on a DCF analysis using an 11% discount rate and a 3% growth rate. At our price target, ex-cash and interest income the company would trade at 15x 2009E EPS, in-line with peer group average multiple of 14x 2008E. Risks to its price target include a slowdown in consumer spending, customer concentration, and the competitive landscape. Upside risks include new customer and design wins. Deutsche Bank's valuation is based on a DCF analysis using an 11% discount rate and a 3% growth rate. At our price target, ex-cash and interest income the company would trade at 15x 2009E EPS, in-line with peer group average multiple of 14x 2008E. Risks to the price target include a slowdown in consumer spending, customer concentration, and the competitive landscape. Upside risks include new customer and design wins. DB has a Buy rating and a $28 PT on UEIC UEIC closed Thursday at $21.24