Wunderlich Downgrades Ubiquiti Networks To Hold, Says Watch For Lower Entry Points

In a report published Friday, Wunderlich analyst Matthew S. Robison downgraded the rating on Ubiquiti Networks, Inc. (NASDAQ: UBNT) from Buy to Hold, while lowering the price target from $37 to $36. The analyst believes that further resolution of issues facing the company would be required before this stock can be recommended.

The company posted better-than-expected F4Q15 results, given the large theft and the issues related to financial control being faced by the company. While the employees are said not to be involved in the theft, the investigation has led to a pause in the recruitment of a new CFO.

The chief accounting officer has also resigned and the company has outsourced its accounting and finance to FTI Consulting, Inc. (NYSE: FCN). According to the Wunderlich report, "FTI is well known to Ubiquiti auditors who may be willing to endorse the upcoming 10K with them on board."

For 4Q15, the company reported its revenue and non-GAAP EPS in-line with the estimates, with higher than estimated margin, which was up 140bps year-on-year.

"After destocking for the first nine months, South America rebounded but was offset by US and EMEA, partly because a portion US business that was resold to South America started to ship directly to the region," Robison said.

Net cash declined during the quarter due to share buybacks, as well as the $46.7 million theft. Of the stolen amount, $14.9 million has been recovered or frozen. In the absence of this theft, FCF would have stood at $56.7 million.

"Apparently perpetrators impersonated upper management electronically, resulting in fraudulent fund transfers that occurred late May/early June, after the April CFO departure," the Wunderlich report stated.

The launch of the full range of Ubiquiti Networks' US spectrum airMAX AC line is likely to be delayed to later in the current quarter due to the protracted approval process. The analyst expects the company to provide more details of product-line enhancements, as well as its new UniFi AC product line, at an industry event in October.

The management announced its F1Q16 guidance, as well as the authorization of share buybacks worth $100 million.