Poly (PLT) Sinks Over 20% Weak Guidance and Supply Chain Headwinds, Analyst Still Bullish On Long-Term Growth Potential

May 14, 2021 9:42 AM EDT
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Shares of Poly (NYSE: PLT) are trading over 24% lower Friday after the electronics company delivered a beat on Q4 sales and profit estimates, but missed on the guidance amid supply chain constraints.

Poly’s adjusted earnings for the period came in at $53.6 million or $1.23 per share, compared to $11.9 million or $0.30 per share, while analysts anticipated earnings of $0.93 per share. Revenue in the quarter climbed to $476.3 million from $403.0 million last year, compared to analysts’ expectations of $455.69 million.

“I want to call out that this was the biggest video quarter in the company's history, a terrific affirmation of the rise of video overall, which we see as a long-term tailwind post-COVID. Despite pandemic-related supply chain pressures and freight cost increases, we continued to protect our gross margins, which were 48.4% for the quarter,” Dave Shull, a President and Chief Executive Officer of the company, said during a call with analysts.

The company said it expects adjusted earnings to range between $0.35 and $0.55 per share on revenue of $410 million to $430 million, short of analysts’ estimates of $0.82 per share and revenue of $441.2 million.

"The global semiconductor chip shortage has impacted companies worldwide and we expect we will continue to experience ongoing tightness in our supply chain," Poly wrote in a statement.

The company posted a net income of $11 million in the fourth quarter, compared to a loss of $677.9 million or $16.94 per share last year. Its results in 2020 also included a goodwill impairment charge of $489.1 million.

Morgan Stanley analyst Meta Marshall reiterated an “Equal-weight” rating on PLT and PT of $31.00 per share as weak outlook outshined “demand strength that delivered upside in FQ4, and an overall healthy environment.”

“We remain EW PLT as we believe discounted valuation relative to leading competitors appropriately accounts for higher leverage levels and trailing competitive position due to greater challenges in meeting demand. Market demand for video and headset products remains a rising tide, challenging a more negative view at an already discounted valuation. However, given outsized supply chain impacts relative to tech peers due to smaller size and more limited sourcing flexibility, Poly is again facing challenges in fully capturing the strong market demand environment,” the analyst said in a memo.

With that being said, large short-term top line and profitability headwinds are likely to continue to weigh in on PLT, the analyst adds.

Gregory Burns, an analyst at Sidoti & Company, doesn’t share the sentiment of Marshall as he remains optimistic on the LT growth potential, despite supply chain issues. He reiterated a “Buy” rating with a price target of $56.00 per share as he expects the gross margin to improve back towards the company’s 50% target by the end of F2022.

“Supply chain constraints are affecting most industries, so it was not surprising to hear this from Poly, but we were surprised by the magnitude of the impact. Poly recently hired a new Head of Supply chain and is in the process of revamping its global procurement model, but the changes have not yet been fully implemented, and Poly got caught short as the global component shortages worsened. That said, we think these are fixable issues, we expect component shortages to lessen over the next few quarters and at the same time, Poly is making progress revamping its supply chain,” the analyst wrote in a note.

The company also announced that its ticker symbol on the New York Stock Exchange (NYSE) will change to "POLY" at the open of market trading on Monday, May 24, 2021.

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