Universal Electronics Inc. (UEIC) develops and manufactures a broad line of pre-programmed universal remote controls and associated software. It was incorporated in Delaware in 1986, and began operations in 1987. Its headquarters are located in California, and it entered the Value Line Investment Survey in 2008. Though the shares hit a new low in 2012, they have more recently been on a bullish run, reaching an all-time high in early 2014, boosted by strong sales and faster earnings growth.
The company has revenues from many sources, receiving payments from its retail remote control devices, as well as cash flow from subscription broadcasting and other consumer electronics companies, which incorporate the company’s IP into their devices. Revenues are multinational, coming from the United States (37%), China (17%), Europe (14%), along with other countries in Asia and Latin America. This creates a diverse customer base, with only DIRECTV (DTV) accounting for more than 10% of revenues.
The consumer electronics are sold at a wide variety of retailers including Best Buy (BBY), Wal-Mart (WMT – Free Wal-Mart Stock Report), and Costco (COST). The company has enjoyed increasing market share in North and Latin America, as well as gains in consumer electronics throughout China. The company has deals with Comcast (CMCSA), Time Warner Cable (TWC), and Shaw (SJR-B.TO) related to its subscription broadcasting.
Universal has a history of vigorously defending its patents. In 2011, it filed a lawsuit against Logitech International (LOGI) for infringement of patents. It eventually walked away with $2 million for past infringement and an ongoing licensing deal. The company has lawsuits outstanding with Universal Remote Control and Peele Technologies, with the first one expected to go to trial in May. As lawsuits tend to be costly, and outcomes are somewhat unpredictable, settlements remain possible.
Long-term growth at the company will likely come from smart devices. Enhanced capabilities, allowing smart phones to control televisions is slowly being adopted into the market place. Indeed, Universal has the patents and interfaces necessary to run virtually all Infrared-based devices in a one-stop shop, allowing for increased user friendliness. Too, tablets and video game controllers, such as those from Microsoft’s (MSFT – Free Microsoft Stock Report) Xbox One and the Nintendo Wii U, will incorporate the technology allowing for high growth in revenues. The smart devices market is approximately double the size of Universal’s subscription broadcasting and hardware markets, which should allow for sizable growth as market penetration occurs. All told, this area will likely become significant for the company over the longer haul.
One of Universal’s strength’s is its solid fiscal condition. The company has a highly liquid balance sheet, with near $76 million in cash on hand and a shareholder equity that is larger than total liabilities. Too, revenues have been growing at a solid clip aided by advancement in the smart devices market. This has allowed for economies of scale to be achieved and for profit margins to expand. In turn, this has helped earnings per share grow at a significant clip, which has supported the share price, even as the total share count continues to inch higher.
The company also benefits from its UEI QuickSet technology, which allows for minimal user setup. This is being worked into set-top boxes, among other content-providing sources. By allowing for easier installation, the company is enriching more universal remote control related products, which allows for more customer wins and increased market penetration. This evolutionary step in universal control, along with an increase in technologies using its IP, should put Universal in a strong position for several years to come.
Universal Electronics appears poised for more years of additional growth. Increased market penetration and new markets should allow for solid growth prospects, overall.
At the time of this article’s writing, the author had positions in: WMT and MSFT.