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Netgear (NTGR) is a Zacks Rank #5 (Strong Sell) even after posting a solid beat.  The problem is that guidance came in below Wall Street expectations, and when that happens, earnings estimates have a way dropping and when that happens, the stock tends to follow. NTGR is now the Bear of the Day and we will take a look at where estimates have slipped to.


Netgear. designs, develops, and markets networking and Internet connected products for consumers, businesses, and service providers. It operates in two segments, Connected Home, and Small and Medium Business. The company offers smart home/connected home/broadband access products, such as broadband modems, WiFi gateways, WiFi hotspots, WiFi routers and home WiFi systems, WiFi range extenders, Powerline adapters and bridges, WiFi network adapters, and digital canvasses; and value added service offerings, including technical support, parental controls, and cybersecurity protection. NETGEAR, Inc. was founded in 1996 and is headquartered in San Jose, California.

Recent Earnings

In late April, NTGR reported EPS of $0.60 and that was $0.11 ahead of the consensus estimate at the time.    Revenues came in at $249M when $244M was expected. That is a solid beat, but that was the extend of the good news. 

The company then guided next quarter for revenue and it wasn't what we like to see.  The company expects sales of $215M – $220M but at the time, the expectation was calling for $256M.

Estimate Revisions

The Zacks Rank tends to focus on the full year numbers more than the quarterly estimates, but in this case, it is worth mentioning the level of decline.

The current quarter was calling for $0.53 in EPS, but followin the soft guide, analysts slashed estimates down to $0.25.  That is a big move down. 

The following quarter wasn't hit as hard, dropping only 3 cents to $0.62.  

The full year number, however, dropped from $2.49 to $2.24.  Next year saw a move lower from $2.87 to $2.75.


With the topline contracting, investors are seeing multiples shrink.  The forward PE for NTGR is 11x while the price to sales multiple is below 1 at 0.6x.  I like to see that price to sales multiple of at least one as it tells me the market values the sales.  Value investors will look at this stock as see a 1.2x price to book, which is very low, so if NTGR can turn it around, this could be a great time to get long.  Problem is, we have to wait and see how the next quarter goes first.


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