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TheStreet Open House

Ubiquiti Networks Launches $75M Buyback, Calls Shares Cheap

Stocks in this article: UBNT

NEW YORK (TheStreet) - Wireless networking company Ubiquiti Networks (UBNT) said on Thursday it would launch a stock buyback to repurchase as much as $75 million worth of what the company believes is its undervalued stock. The company, which is profitable, will fund the buyback with its existing credit facilities.

Ubiquiti Networks expects the repurchase to begin on Monday and said in a press release it believes the company's stock is undervalued. "Given our confidence in our long-term growth prospects and technology platforms, we believe that our shares are undervalued," Craig Foster, CFO of Ubiquiti Networks, said in a statement.

"We have been profitable every quarter since our launch, and have experienced significant revenue growth over the past six quarters. Our healthy balance sheet and expected future cash flows provide us the opportunity to enhance shareholder value through share repurchases while continuing to invest in future growth," he added.

Earlier this month, Ubiquiti posted reported better than expected fiscal third-quarter earnings, with revenue coming in 4% above consensus and earnings per share in line with analyst forecasts. While some analysts took the earnings report as further proof of Ubiquiti's strengthening execution, others focused on alarming trends such as rising expenses and bigger inventories.

Inventories more than doubled to $66 million in the quarter, or to a level where inventory days reached 54 days from 29 the prior quarter.

Credit Suisse analysts said the inventory build was a means to build networking equipment supply amid an ambitious slate of product launches and geographical expansion. In past quarters, Ubiquiti has faced inventory shortfalls and also struggled to meet order demand. Still, Credit Suisse questioned Ubiquiti's inventory boost given slowing near-term sales and slowing growth rates in most of the company's various geographies.

Wedbush Securities analysts downgraded Ubiquiti on May 9, citing the company's third quarter earnings and rising inventory levels. "Despite a strong beat on revenue, a small beat on EPS, and in-line FQ3 guide, we advise investors to move to the sidelines given a 4x increase in inventory from January levels," analysts at the firm said.

By launching a $75 million stock buyback, Ubiquiti Networks may believe third quarter earnings have caused the company's shares to become undervalued. Shares have fallen over 7% in the past month.

Post IPO Performance

Ubiquiti Networks has had a wild ride in stock markets since going public in late 2011 in one of the largest post-crisis technology IPO's at the time. Shares in the company tumbled in its first year of trading amid poor earnings results. However, Ubiquiti's shares have risen over 70% in the past 12-months on stronger earnings results.

Shares in Ubiquiti were nearly 6% higher in early Thursday trading at $24.

-- Written by Antoine Gara in New York.

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