Universal Display Corporation Harvard Case Solution & Analysis

Universal Display Corporation

1.) Recommendation. Do you recommend a long or short position, and why? What is your target price (developed in Section 6, Valuation, below), potential upside, and time horizon for the investment?

In just one year time, Universal Display has seen many ups and downs in the stock market. As much as 4% volatility could be observed in the share price of the company on 95 of the 251 trading days. As a result of disagreement among investors on the strength of the company’s patent portfolio, on how quickly OLED adoption will occur in flat-panel displays, and on how favorable the terms of the Samsung license agreement are for Universal Display, the company has become one of the more polarizing stocks on the market.

I take a bullish position against the other 23% traders that have short interest. The reason for taking opposite of short interest in the shares of Universal Display is that, historically the company’s stock has risen well above after falling. In the previous August, the stock traded up 83 percent in the ten days following the Samsung announcement (8/19 to 8/29, from $27.92 to $51.22). Now that LG is also an interested buyer and is about to close a deal with Universal Display, the stock prices are expected to plunge once again. For this reason, it is wise to take a long position in the company’s stock to benefit the most.

In the short run, the share price will tremble and may even fall due to the uncertainty about the agreement and patent position of the company; however, the probability that the company will win the patent and the agreement is also relatively high.

For this purpose, I recommend to purchase additional shares of Universal Display Corporation. It is expected that the stock may fall in the short run, which is an additional benefit for the company as the spread will be higher if it is bought on low prices. This stock has a tendency to rise in a very short time if the market knows about the upcoming events like a new patent or licensing deal.

The new technology is getting widely accepted by many companies now. Since Samsung was the only buyer of OLED in the first place, Universal Display could not negotiate much on the royalty rates. However, now that other companies are accepting OLED as the technology of future hence, Universal Display can charge a high royalty from them.

The decrease in market share of Samsung in OLED must be seen as positive by the company. Without the license agreement, the share price plunged above 50, so after the announcement, it can touch a high rate of $100 according to the Consensus View (Street Recommendations).

My target price is $47.40 which is calculated according to the assumed probabilities of base, bull and bear case. This weighted average is considered as the best educated guess which shows an upside potential of 35.4 percent.

2.) Key Statistics. Provide a one-page summary (with supporting materials attached as an appendix) that includes historical price performance, analyst targets, market capitalization, average volume, trading multiples, dividend yield, short interest, and key operating metrics.

The company’s stock has risen and fallen down with high variations in the recent times. The news that rolled around about the renewal of its license agreement with Samsung to be its sole provider of OLED materials through 2017 created a buzz in the market and made the stock of Universal Display Corporation very attractive for the investors.

However, the stock market is a very volatile market and the rule followed in this market is to buy on rumor and sell on facts. Thus, Nash Capital needs to find concrete data in order to select the option of long or short position in the company. The decision is very difficult to take because there are different views on the market about the stock price of Universal Display Corporation. The variation between bullish and bearish position is as huge as $65 according to the two hedge funds that were contacted by Nash Capital.

One hedge fund claims that the stock price is not worth above $10, whereas other hedge fund claims that it is worth $75 and thus, the company should take a long position to stock pile the Universal Corporation’s shares.

Stock: Universal Display Corporation (NASDAQ: PANL)

Financial Performance

The sales revenue of Universal Display increased by 101% year-over-year in 2011. Quarter 3 and Quarter 4 of 2011 represented the initial quarters in which the company had positive EBITDA in history, and the company broke even ............................

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