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Thursday, October 22, 2020

Daktronics, Inc. (NASDAQ:DAKT) International Growth a Critical Factor

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Daktronics, Inc. (NASDAQ:DAKT) is looking for a signal that positive growth will continue. Shares of Daktronics are currently trading in a range of $9.33-$9.55, and are nearing their high for the past year. Over the most recent 52-week period, shares of DAKT have traded as low as $5.92 and as high as $10.28. At a current share price of $9.46, the company has a stock market capitalization of $410.97 million.

If you’ve ever been to a professional sporting event then you’ve probably stared at their products and not even known it.

Daktronics, Inc. (NASDAQ:DAKT) is a supplier of electronic scoreboards, electronic display systems, digital messaging solutions, and software and services for sporting, commercial and transportation applications. The company operates in five major business segments – Commercial, Live Events, High School Parks and Recreation, Transportation and International. The scale of the company’s products range from small electronic displays to intelligent messaging displays for highways and large video display systems for stadiums.

From the perspective of investors, the most important business segment for DAKT is now International, which is where the company’s primary future growth will come from. That being said, even the company’s management admits that earnings can be “lumpy” due to changing macroeconomic forecasts. Since order sizes are typically very large, a change in the overall global economic climate can have an outsized impact on the company’s business, which is already seasonal in nature (i.e. outdoor scoreboards and displays).

When DAKT released 4Q 2016 results in June 2016, investors reacted swiftly to very disappointing results. The company missed analyst estimates in all categories – orders, revenue and profitability, and shares of the company were pushed down 16.5 percent. The company in part blamed lower sales of outdoor billboards and displays.

However, three months later, when DAKT released 1Q 2017 earnings in August, the company’s shares traded up 19 percent on better than expected earnings and profitability. The company reported a quarterly profit of $0.13 per share. In addition, the company posted $157 million in revenue, above the $147 million predicted by analysts, and 5 percent higher than in the previous quarter.

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In the first nine months of 2016, DAKT has been a strong performer. As of September 22, shares over a three-month period were up 54 percent; over a six-month period, they were up 24.9 percent; and over a 1-year period, they were up 19.9 percent. Thus, the company seems to have overcome disappointing financial results posted during June.

Daktronics has a footing as a major player in the US market for digital display products, and often makes splashy headlines. Oct. 5, 2016 –Sprint Center in Kansas City, Missouri, has commissioned Daktronics (NASDAQ-DAKT) of Brookings, South Dakota, to design, manufacture and install a new six-display center hung video system. The system will be installed this fall and ready to enhance the atmosphere of multiple events held at the facility.

“Installation of the new centerhung video system is a vital upgrade for Sprint Center,” said Brenda Tinnen, Sprint Center/AEG senior vice president and general manager. “Partnering with Daktronics to implement advances in technology is critical for enhancing the guest experience and exceeding the expectations of artists and events.” This is big news on a local level, but they must do more to appease shareholders long-term.

The big question remains going forward is whether the company is going to see bigger orders from its international customers. When the company reported earnings, the company’s management noted that it was still difficult to see any clear picture for the broader economic environment. The question then becomes: if the company is unable to boost its international revenue, how will it make it up on the domestic side?

From a technical indicator perspective, the 50-day SMA for the company is $9.28 and the 200-day SMA is $7.79. This would appear to be a bullish technical indicator for shares of DAKT. However, according to an updated price target put out by Needham & Co. on August 23, the near-term target for the company is only $9.5. Given the current trading price of $9.46, that would seem to indicate that the company’s stock has only limited upside.

One other key factor may be the relatively large institutional ownership in the company. As of October 5, institutional investors owned 51 percent of the company. If this ownership percentage begins to tick upwards, this could be a strong indicator that the company has found a way to grow earnings going forward. We will continue to watch DAKT closely, and update our readers with any developments.  For continuing coverage on $DAKT and our other fast moving picks, sign up for our free newsletter today and get our next hot stock pick!

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