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NETGEAR Stock Surges 31% on Revised Outlook & Litigation Settlement
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NETGEAR, Inc. (NTGR - Free Report) stock surged 30.8% yesterday and closed the session at $20.84. The stock rallied after the company announced an agreement with TP-Link Systems Inc., settling the companies’ pending U.S. International Trade Commission and patent infringement litigation and TP-Link’s breach of contract claims and patent challenges.
NTGR has received a $135 million payment as consideration for resolving the litigation. As a result, all the legal disputes between the two parties will be dismissed per the terms of the settlement agreement.
NTGR Raises Q3 Outlook
NETGEAR also raised its third quarter of 2024 revenue guidance owing to the litigation settlement and early launch of the company’s next-generation 5G mobile hotspot. The hotspot was previously expected to launch in the fourth quarter of 2024.
Revenues for the third quarter are now expected to be between $170 million and $180 million compared with the earlier projected range of $160-$175 million. Of the total settlement amount, NETGEAR expects to report a net benefit (before taxes) of $103.6 million. NTGR will also reverse the $8.2 million contingent fee, which was recorded in the second quarter of 2024, as all associated fees are included in the net benefit of $103.6 million.
Out of this $103.6 million, $10.9 million will be recorded as a reduction in GAAP G&A expenses, which will offset actual fees incurred to date. The remaining $92.7 million will be recorded as a contra-expense in litigation reserves (net within operating expenses). This contra-expense will offset NTGR’s total operating expenses for the current quarter and result in growth in GAAP operating profit.
Consequently, NETGEAR now projects the GAAP operating margin for the third quarter between 48% and 51% and the non-GAAP operating margin is anticipated to be between (4)% and (1)%. Previously, the GAAP operating margin was forecasted to be between (15.3)% and (12.3)%, while the non-GAAP operating margin was estimated in the band of (11)-(8)%.
However, the GAAP tax expense is now projected to be between $19 million and $20 million. Earlier, the GAAP tax expense was anticipated to be in the range of $1-$2 million. Non-GAAP tax expense is expected to be in the range of range of zero to $1 million compared with previous guidance of a tax benefit of $1.5 million to $2.5 million.
NTGR also has repurchased 99,000 shares for $1.5 million and does not expect any further repurchases in the current quarter owing to trading window restrictions.
What Lies Ahead for NTGR?
The early launch of the new 5G hotspot and several new product introductions position NTGR well to benefit from the Wi-Fi 7 upgrade cycle. In August 2024, NETGEAR unveiled the WBE710 Insight Manageable Tri-band WiFi 7 Access Point solution. This solution is designed to boost data throughput across multiple bands to lower network congestion.
Earlier in the year, the company launched two new Wi-Fi 7 products at mainstream prices. Management noted that the state-of-the-art Orbi 770 Tri-band Mesh System and Nighthawk RS300 Router are its “most affordable” Wi-Fi 7 products to date. Going ahead, the company plans to further expand its WiFi 7 mesh and mobile hotspots product line to gain from the WI-FI 7 upgrade cycle.
Also, with the completion of inventory destocking, NETGEAR expects its performance to be more aligned with the market. It also expects less volatility from shifting channel inventory levels. Strength in ProAV managed switch business and efforts to expand Wi-Fi LAN business are other tailwinds. For the CHP business, it expects headwinds to subside as the new Wi-Fi 7 upgrade cycle begins.
NTGR’s Zacks Rank & Stock Price Performance
NTGR currently carries a Zacks Rank #4 (Sell). Shares of the company have gained 61.9% in the past year against the sub-industry’s decline of 12.6%.
The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26, unchanged in the past 30 days. MANH’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 26.6%. The stock has surged 30.1% in the past year.
The Zacks Consensus Estimate for Adobe’s fiscal 2024 EPS is pegged at $18.16, unchanged in the past 30 days. ADBE’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.6%. The long-term earnings growth rate is 13%. Its shares have gained 6.2% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 0.3% in the past year.
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NETGEAR, Inc. (NTGR - Free Report) stock surged 30.8% yesterday and closed the session at $20.84. The stock rallied after the company announced an agreement with TP-Link Systems Inc., settling the companies’ pending U.S. International Trade Commission and patent infringement litigation and TP-Link’s breach of contract claims and patent challenges.
NTGR has received a $135 million payment as consideration for resolving the litigation. As a result, all the legal disputes between the two parties will be dismissed per the terms of the settlement agreement.
NTGR Raises Q3 Outlook
NETGEAR also raised its third quarter of 2024 revenue guidance owing to the litigation settlement and early launch of the company’s next-generation 5G mobile hotspot. The hotspot was previously expected to launch in the fourth quarter of 2024.
Revenues for the third quarter are now expected to be between $170 million and $180 million compared with the earlier projected range of $160-$175 million. Of the total settlement amount, NETGEAR expects to report a net benefit (before taxes) of $103.6 million. NTGR will also reverse the $8.2 million contingent fee, which was recorded in the second quarter of 2024, as all associated fees are included in the net benefit of $103.6 million.
NETGEAR, Inc. Price, Consensus and EPS Surprise
NETGEAR, Inc. price-consensus-eps-surprise-chart | NETGEAR, Inc. Quote
Out of this $103.6 million, $10.9 million will be recorded as a reduction in GAAP G&A expenses, which will offset actual fees incurred to date. The remaining $92.7 million will be recorded as a contra-expense in litigation reserves (net within operating expenses). This contra-expense will offset NTGR’s total operating expenses for the current quarter and result in growth in GAAP operating profit.
Consequently, NETGEAR now projects the GAAP operating margin for the third quarter between 48% and 51% and the non-GAAP operating margin is anticipated to be between (4)% and (1)%. Previously, the GAAP operating margin was forecasted to be between (15.3)% and (12.3)%, while the non-GAAP operating margin was estimated in the band of (11)-(8)%.
However, the GAAP tax expense is now projected to be between $19 million and $20 million. Earlier, the GAAP tax expense was anticipated to be in the range of $1-$2 million. Non-GAAP tax expense is expected to be in the range of range of zero to $1 million compared with previous guidance of a tax benefit of $1.5 million to $2.5 million.
NTGR also has repurchased 99,000 shares for $1.5 million and does not expect any further repurchases in the current quarter owing to trading window restrictions.
What Lies Ahead for NTGR?
The early launch of the new 5G hotspot and several new product introductions position NTGR well to benefit from the Wi-Fi 7 upgrade cycle. In August 2024, NETGEAR unveiled the WBE710 Insight Manageable Tri-band WiFi 7 Access Point solution. This solution is designed to boost data throughput across multiple bands to lower network congestion.
Earlier in the year, the company launched two new Wi-Fi 7 products at mainstream prices. Management noted that the state-of-the-art Orbi 770 Tri-band Mesh System and Nighthawk RS300 Router are its “most affordable” Wi-Fi 7 products to date. Going ahead, the company plans to further expand its WiFi 7 mesh and mobile hotspots product line to gain from the WI-FI 7 upgrade cycle.
Also, with the completion of inventory destocking, NETGEAR expects its performance to be more aligned with the market. It also expects less volatility from shifting channel inventory levels. Strength in ProAV managed switch business and efforts to expand Wi-Fi LAN business are other tailwinds. For the CHP business, it expects headwinds to subside as the new Wi-Fi 7 upgrade cycle begins.
NTGR’s Zacks Rank & Stock Price Performance
NTGR currently carries a Zacks Rank #4 (Sell). Shares of the company have gained 61.9% in the past year against the sub-industry’s decline of 12.6%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Manhattan Associates (MANH - Free Report) , Adobe (ADBE - Free Report) and ANSYS (ANSS - Free Report) . While Manhattan Associates sports a Zacks Rank #1 (Strong Buy), Adobe and ANSYS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for MANH’s 2024 EPS is pegged at $4.26, unchanged in the past 30 days. MANH’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 26.6%. The stock has surged 30.1% in the past year.
The Zacks Consensus Estimate for Adobe’s fiscal 2024 EPS is pegged at $18.16, unchanged in the past 30 days. ADBE’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 2.6%. The long-term earnings growth rate is 13%. Its shares have gained 6.2% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 0.3% in the past year.