Zagg's Mixed Q4 Results Send B Riley FBR To Sidelines

Zagg Inc ZAGG reported below-consensus adjusted earnings per share for the fourth quarter of 2017  on Wednesday, despite 54-percent net sales growth.

The company's fiscal 2018 EBITA guidance fell below estimates, according to B Riley FBR.

The Analyst

B Riley FBR analyst Jeff Van Sinderen downgraded shares of Zagg from Buy to Neutral and lowered the price target from $20 to $16.

The Thesis

Zagg, which is known for its "Invisible Shield" brand of protective coverings for mobile phones, reported subpar gross margins due to higher freight costs and promotional expenses, Van Sinderen said in a Thursday note. This led to the below-consensus EBITDA figure, the analyst said. 

Zagg announced the retirement of CEO Randy Hales. He was replaced by Chris Ahern, who was previously head of mophie and international business, Van Sinderen said. 

"Growth is coming increasingly from lower-margin power management, as screen protection growth is decelerating," the analyst said. 

To account for this evolving mix and concerns around whether Zagg can achieve the gross margin expansion needed to reach its EBITDA guidance, B Riley FBR lowered its 2018 estimates. The firm sees the 2018 cadence as being weighted toward the secon quarter and back half as Zagg transitions from a distributor to direct model.

"In our opinion, visibility is murky into the coming year and we are not convinced that hitting some of the targets the company has laid out for 2018 [is a] 'layup,'" Van Sideren said. 

The Price Action

Zagg shares were up about 160 percent over the past year until Wednesday.

The stock was plunging more than 19 percent to $12.55 at the time of publication Thursday. 

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Photo courtesy of Zagg.