UBNT...Slowing Growth At Ubiquiti Makes BMO Bearish

• Ubiquiti Networks Inc UBNT shares are up 18 percent year-to-date, although they are meaningfully lower than the 52-week high of $44.91, reached in September 2014.
• BMO Capital Markets’ Tim Long downgraded the rating for the company from Market Perform to Underperform, while maintaining the price target at $30.
• The company may have another quarter of slow growth, which could lower the stock valuation, Long said.

Ubiquiti’s shares have outperformed peers and the NASDAQ year-to-date. Analyst Tim Long said that the shares appreciated despite “what we view as a meaningful change to the long-term growth rate, some management turnover, and a weakness in financial controls that was recently exposed.”

Ubiquiti’s revenues have been flat over the past six quarters. There has been a significant slowdown in share gains in Wifi, with a shift in the industry to 802.11ac, Long noted.

Moreover, the AirMax business has hit a roadblock on account of weakness in the emerging markets, and new products are yet to gain traction. In view of these hindrances, Long expects the company to grow in the mid-to-high single-digit range over the next few years.

The analyst expressed concern over “another lackluster growth quarter,” which could result in a lower valuation for the shares. “We remain concerned about the steady management turnover, particularly since a significant financial control issue popped up last quarter, and this remains a company with low visibility,” the BMO Capital Markets report added.

“Shares of Ubiquiti have done well despite some recent misses and slowing growth…Given the decelerating growth, lack of visibility, and inconsistent execution, we do not believe the shares warrant a premium multiple and expect the shares to underperform the group over the next year,” Long explained.