A Snappy Investment in Your TV Clicker?
By Gene Marcial
Chances are that when you pick up your remote to turn on your TV or CD player, you're holding a widely used technology provided by Universal Electronics (UEIC ). The pioneer and leader in wireless remote-control technologies, Universal makes preprogrammed remote-control devices equipped with its patented technology for practically every kind of electronic gadget -- including home appliances. And yet Universal is far from a household name on the Street.
But that may soon change. Universal is bound to be discovered before long by investors as Wall Street becomes more aware of the growth potential of Universal's technology and products, which have long been taken for granted. One of Universal's major products is a "universal," or one-for-all, remote that can control any electronic gear inside a home. The typical American household now has four to five different remotes for as many electronic gadgets, according to Universal.
The company will emerge a "big winner in digital convergence, since it already has key technologies" critical for next-generation digital home-entertainment and -automation applications, says Jason Sam of Roth Capital Partners.
Currently trading around 18 a share, Universal should see "significant incremental upside over the next several years," adds Sam, who recently upgraded the stock to a strong buy, with a 12-month target of 27. Products under development include wireless keyboards and palm-size touch-screen remote-control devices.
"We expect significant revenue and earnings growth for Universal," driven by strong demand from tech customers, says Sam. The company beat analysts' consensus estimates in 2000 -- a rarity in the tech world -- by posting profits of 76 cents a share, vs. estimates of 73 cents. Sam notes that its stock trades at a discount to its peer group, which includes Scientific Atlanta (SFA ), which is selling at a price-earning ratio of 36, and Gemstar-TV Guide International (GMST ), which trades at a 30 multiple. Universal's p-e is 23.
The company is expected to report its first-quarter results on Apr. 26. "We haven't lowered our original guidance to analysts," says Chairman Camille Jayne. Neither does she expect to scale back earnings for all of 2001, which are estimated at about 93 cents a share (Sam expects Universal to post EPS of 95 cents for 2001).
THREE DOZEN PATENTS.
CEO Paul Arling says the company's annual earnings growth has remained steady at 18% to 20%. He expects Universal to again beat analysts' 2001 estimates. One reason is that Universal, he contends, isn't much affected by either the economy's slowdown or the drop in capital spending. "People continue to watch TV or use their PCs in spite of a slowdown," says Arling.
And the rise in Internet use and interactive devices, including videogames, is also fueling the need for Universal's products, he adds. The company has 36 patents, broadly covering any form of two-way communication between a remote control and a computer (which could be a PC, a digital set-top box, or VCR).
"Our company's penetration of this huge multibillion-dollar market still has a long way to go," says Jayne. It now has about 20% of the worldwide universal remote-control market. She notes that Universal currently supplies wireless remotes to 13 of the 15 largest cable operators in the U.S., which cover 70% of the digital-cable market. The big customers in this group include Charter Communications (CHTR ), Cox Communications (COX ), AOL Time Warner (AOL ), Echostar Communications (DISH ), and MediaOne (UMGI ).
MICROSOFT TO KMART.
Apart from producing its own brand, Universal also supports big original-equipment producers, equipment retailers, and subscription broadcasters by licensing its technology to them or producing products specifically designed by them. Among other large customers are Microsoft (MSFT ), Motorola (MOT ), Sony (SNE ), Philips Electronics (PHG ), and RadioShack (RSH ).
Universal also licenses its "One for All" remote brand and technology to Computime, which markets the devices to such giant retailers as Wal-Mart (WMT ), Circuit City Stores (CC ), and Kmart (KM ). Could Universal eventually be in every remote worldwide, a la the "Intel Inside" idea? That's not a remote possibility, insist Jayne and Arling.
Marcial is BusinessWeek's Inside Wall Street columnist