NetGear: Zacks’ Bear of the Day Play

NetGear (NTGRSnapshot Report) reported earnings below the Zacks Consensus Estimate in the most recent quarter and has seen revenues trending lower. As a result estimates are coming down making it a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day.

Description

NetGear provides networking products to consumers, businesses, and service providers. The company was founded in 1996 and is headquartered in San Jose, California.

Recent Miss

The company recently posted a gain of $0.38 when the Zacks Consensus Estimate was $0.41. The topline was in line with expectations and as a result the stock dropped 9.5% in the session following release.

Earnings Estimates

Estimates have been falling all year. The Zacks Consensus Estimate for 2015 was $2.15 at the start of the year, but has since fallen to $1.59.

The 2016 Zacks Consensus Estimate, which analysts probably have limited visibility into, has also dropped from $2.13 to $1.98 over nearly the same time period. 2016 estimates debuted in February.

Valuation

The valuation for NTGR is connecting well with investors. A trailing PE multiple of 15x is in line with the industry average. The forward multiple of 19x higher than the 13x industry average for forward PE.

Personal Example

I am sure a channel check of one person or maybe even two isn’t statistically a valid sample… but recently I had to replace a NetGear wireless router that was in service for less than 1 year. At the same time that I was making my “emergency” purchase, another woman was noting that the name N300 model also abruptly stopped working. So 2 instances aren’t a trend, but I did feel the need to share that story.

It should also be noted that we both went on to purchase the N600 model from NetGear — possibly this was due to the fact that no other routers were available from the Radio Shak in Charlevoix Mi.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represent analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #5 (Strong Sell) we see that estimates are moving lower.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

He also run the new Stocks Under $10 Investor service where he looks for low priced stocks that are seeing positive earnings estimate revisions. This popular service has seen some strong early returns and offers a free trial via the Zacks Ultimate

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