NETGEAR Inc. NTGR stock has jumped 95% in the past year compared with the S&P 500 composite and the sub-industry’s growth of 25.3% and 16.4%, respectively. NTGR’s stock price appreciation is driven by continued strength across its NETGEAR for Business (“NFB”) and Connected Home (“CHP”) business units. Loss estimates for 2024 have narrowed to $1.10 per share from a loss of $1.53 over the past 90 days.
One-Year Stock Performance
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Factors Favoring NTGR
San Jose, CA-based NETGEAR is a top provider of advanced, high-performance and premium networking technologies and Internet-connected products for consumers, businesses and service providers. It sells its products through multiple sales channels worldwide, including wholesale distributors, traditional and online retailers, direct market resellers, value-added resellers, broadband service providers and through its website across Americas, Europe, Middle-East and Africa and Asia-Pacific.
The NFB segment is driven by the rising demand for its ProAV managed switch products, which cater to the evolving needs of professional audio-video environments. Backed by a robust portfolio of premium products and increasing demand for cutting-edge solutions like the new M7 Pro mobile hotspots and Nighthawk devices, the CHP business is poised for market expansion. In addition, it has successfully executed a destocking strategy across its CHP and NFB segments, achieving a $27 million reduction in inventory during the last reported quarter. This initiative is designed to better align sell-in with sell-through for its channel partners, enhancing revenue predictability.
The company reported a 22% increase in recurring services revenues for the quarter, bringing its total subscriber count to 555,000. The steady growth in subscriber revenues is critical for ensuring long-term financial stability and strengthening cash flow generation.
NETGEAR is capitalizing on the growing demand for advanced networking solutions driven by more connected devices and the shift to WiFi 7, which is 2.4 times faster than its predecessor. The company has expanded its WiFi 7 portfolio with new products like the RS600, RS500, RS200 routers and the WBE710 Tri-band WiFi 7 Access Point, offering faster speeds, lower latency and enhanced security. Also, it launched a next-generation 5G mobile hotspot. Focused on affordability, reliability and ease of use, these innovations strengthen its position across consumer, business and service provider markets.
Headwinds Hurting NTGR’s Prospects
NETGEAR continues to be plagued by a weak macroeconomic backdrop and rising costs, which weigh on its performance. Margins are expected to remain under pressure due to ongoing inventory reduction initiatives and higher transportation expenses, including disruptions caused by the Red Sea shipping crisis.
The company expects heightened promotional activities in its CHP segment's retail business during the holiday season, which could further hurt margins. In addition, fourth-quarter revenues from the service provider channel are projected to be around $20 million, reflecting a slight sequential decline due to the earlier launch of the M7 Pro mobile hotspot.
End Note
With a Zacks Rank #3 (Hold), NTGR appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. It delivered an earnings surprise of 164%, on average, in the trailing four quarters. The company has an average brokerage recommendation (ABR) of 2 on a scale of 1 to 5 (Strong Buy to Strong Sell). ABR is the calculated average of actual recommendations made by brokerage firms and portends the future potential of the stock.
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