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NETGEAR Jumps 38% Year to Date: Is it Time to Bet on the Stock?
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Shares of NETGEAR Inc. (NTGR - Free Report) have gained 37.6% year to date, outperforming its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 4.8%, 24.2% and 21.1%, respectively. NTGR stock gained 1% in the last trading session and closed at $20.06, near its 52-week high of $22.62, attained on Sept. 13.
YTD Performance
Image Source: Zacks Investment Research
The stock had an average run on the trading front for most of the year. However, the stock started climbing upward after the company raised its third quarter of 2024 revenue guidance on Sept.11. The guidance lift was owing to the litigation settlement with TP-Link Systems and the early launch of its next-generation 5G mobile hotspot. Investors cheered the development and stock gained 31% on Sept.12.
The question arises as to whether the stock can sustain this newfound momentum. Let’s dive into NTGR’s prospects and determine the best course of action for your portfolio.
NTGR Lifts Third-Quarter Guidance
NETGEAR revised the company’s guidance for the third quarter after settling its legal dispute with TP-Link Systems. It 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. The early launch of the company’s next-generation 5G mobile hotspot, which was previously expected to launch in the fourth quarter of 2024, acted as another catalyst.
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. The company 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.
Consequently, NETGEAR now projects the GAAP operating margin for the third quarter to be 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 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.
NTGR to Gain From Wi-Fi 7 Upgrade Cycle
The rapid demand for robust networking solutions owing to the growing number of internet-connected devices and the shift from older WiFi standards to the much-awaited WiFi 7 bodes well for NTGR. WiFi 7 offers speeds 2.4 times faster than WiFi and meets the increasing demands of modern connectivity. NTGR is strengthening its portfolio of Wi-Fi 7 devices with new product launches.
Apart from the early launch of the next-generation 5G mobile hotspot, the company recently expanded its Nighthawk WiFi 7 standalone router portfolio with the addition of the RS600, RS500 and RS200 routers. The new standalone WiFi 7 routers complement the Nighthawk RS700S and RS300, offering impressive speed, low latency and high capacity, all supported by strong security features.
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.
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.
Technical indicators are also supportive of NTGR’s strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and confidence in its growth prospects.
Image Source: Zacks Investment Research
NTGR presents a compelling investment opportunity with its attractive forward 12-month price-to-sales ratio of 0.84X, significantly lower than the industry average of 3.31X observed in the past five years. Its forward 12-month price-to-sales ratio positions NTGR as a value-driven choice with significant upside potential.
Image Source: Zacks Investment Research
NTGR Faces Headwinds
Weak macroeconomic conditions and increasing costs remain an overhang on the performance. Margins are likely to remain affected by inventory reduction efforts and elevated transportation costs, including the Red Sea shipping crisis.
In the past 60 days, analysts have increased their earnings estimates for the current quarter and current year by 30.3% and 7.8%, respectively. The estimates for the next quarter have been revised downward by 7.7%.
Image Source: Zacks Investment Research
Is it a Good Time to Invest in NTGR Stock?
Strong end-market demand and opportunities presented by the Wi-Fi 7 and 5G upgrade cycles are positives for NTGR but the external risks warrant caution in the near term. The company’s mixed estimate revisions activity makes us wary.
Consequently, it might not be a prudent investment decision to bet on the stock, which carries a Zacks Rank #3 (Hold) at present.
The Zacks Consensus Estimate for STX’s fiscal 2025 EPS is pegged at $7.41, unchanged in the past 30 days. STX’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the remaining quarter, with the average surprise being 80.9%. The stock has surged 65.4% in the past year.
The Zacks Consensus Estimate for American Software’s 2024 EPS is pegged at 38 cents, unchanged in the past seven days. AMSWA’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching in the remaining quarter, with the average surprise being 84.5%. Its shares have declined 2.3% in the past year.
The Zacks Consensus Estimate for NTAP’s fiscal 2025 earnings is pegged at $7.08, unchanged in the past seven days. NTAP’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 8.6%. Its shares have gained 63% in the past year.
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NETGEAR Jumps 38% Year to Date: Is it Time to Bet on the Stock?
Shares of NETGEAR Inc. (NTGR - Free Report) have gained 37.6% year to date, outperforming its sub-industry, the Zacks Computer and Technology sector and the S&P 500 composite’s growth of 4.8%, 24.2% and 21.1%, respectively. NTGR stock gained 1% in the last trading session and closed at $20.06, near its 52-week high of $22.62, attained on Sept. 13.
YTD Performance
Image Source: Zacks Investment Research
The stock had an average run on the trading front for most of the year. However, the stock started climbing upward after the company raised its third quarter of 2024 revenue guidance on Sept.11. The guidance lift was owing to the litigation settlement with TP-Link Systems and the early launch of its next-generation 5G mobile hotspot. Investors cheered the development and stock gained 31% on Sept.12.
The question arises as to whether the stock can sustain this newfound momentum. Let’s dive into NTGR’s prospects and determine the best course of action for your portfolio.
NTGR Lifts Third-Quarter Guidance
NETGEAR revised the company’s guidance for the third quarter after settling its legal dispute with TP-Link Systems. It 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. The early launch of the company’s next-generation 5G mobile hotspot, which was previously expected to launch in the fourth quarter of 2024, acted as another catalyst.
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. The company 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.
Consequently, NETGEAR now projects the GAAP operating margin for the third quarter to be 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 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.
NTGR to Gain From Wi-Fi 7 Upgrade Cycle
The rapid demand for robust networking solutions owing to the growing number of internet-connected devices and the shift from older WiFi standards to the much-awaited WiFi 7 bodes well for NTGR. WiFi 7 offers speeds 2.4 times faster than WiFi and meets the increasing demands of modern connectivity. NTGR is strengthening its portfolio of Wi-Fi 7 devices with new product launches.
Apart from the early launch of the next-generation 5G mobile hotspot, the company recently expanded its Nighthawk WiFi 7 standalone router portfolio with the addition of the RS600, RS500 and RS200 routers. The new standalone WiFi 7 routers complement the Nighthawk RS700S and RS300, offering impressive speed, low latency and high capacity, all supported by strong security features.
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.
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 Strong Technical Indicators & Attractive Valuation
Technical indicators are also supportive of NTGR’s strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and confidence in its growth prospects.
Image Source: Zacks Investment Research
NTGR presents a compelling investment opportunity with its attractive forward 12-month price-to-sales ratio of 0.84X, significantly lower than the industry average of 3.31X observed in the past five years. Its forward 12-month price-to-sales ratio positions NTGR as a value-driven choice with significant upside potential.
Image Source: Zacks Investment Research
NTGR Faces Headwinds
Weak macroeconomic conditions and increasing costs remain an overhang on the performance. Margins are likely to remain affected by inventory reduction efforts and elevated transportation costs, including the Red Sea shipping crisis.
In the past 60 days, analysts have increased their earnings estimates for the current quarter and current year by 30.3% and 7.8%, respectively. The estimates for the next quarter have been revised downward by 7.7%.
Image Source: Zacks Investment Research
Is it a Good Time to Invest in NTGR Stock?
Strong end-market demand and opportunities presented by the Wi-Fi 7 and 5G upgrade cycles are positives for NTGR but the external risks warrant caution in the near term. The company’s mixed estimate revisions activity makes us wary.
Consequently, it might not be a prudent investment decision to bet on the stock, which carries a Zacks Rank #3 (Hold) at present.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Seagate Technology Holdings plc (STX - Free Report) , NetApp (NTAP - Free Report) and American Software, Inc. (AMSWA - Free Report) . While Seagate sports a Zacks Rank #1 (Strong Buy), AMSWA and NTAP 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 STX’s fiscal 2025 EPS is pegged at $7.41, unchanged in the past 30 days. STX’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the remaining quarter, with the average surprise being 80.9%. The stock has surged 65.4% in the past year.
The Zacks Consensus Estimate for American Software’s 2024 EPS is pegged at 38 cents, unchanged in the past seven days. AMSWA’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching in the remaining quarter, with the average surprise being 84.5%. Its shares have declined 2.3% in the past year.
The Zacks Consensus Estimate for NTAP’s fiscal 2025 earnings is pegged at $7.08, unchanged in the past seven days. NTAP’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 8.6%. Its shares have gained 63% in the past year.