Universal Display Corp. shares rose Friday after a Goldman Sachs analyst initiated coverage of the lighting products maker with a "Buy" rating and said the company is poised for strong revenue growth in the next few years as demand increases for its organic light-emitting diodes.
THE SPARK: Goldman Sachs analyst Min Park gave Universal Display a "Buy" rating and a 12-month price target of $55, which represents a 35 percent increase. The analyst thinks the company's position in the fast-growing OLED display market will enable it to post compounded annual revenue growth near 60 percent from 2010 to 2015.
THE BACKGROUND: Universal Display makes lighting products that are used in flat-panel displays on smartphones and in energy-efficient lights. It wants its OLED technology to compete with the LCD displays that are now used in high-definition TVs.
THE ANALYSIS: Park expects rapid growth in the commercial use of OLED technology, citing the development of more-energy efficient displays by Universal Display and a recent decision by Samsung Mobile Display to use the displays in mobile handsets.
OLEDs should eventually grab a bigger slice of the flat panel display market, becoming a key alternative to LCDs over the long term, Park said.
The lack of commercial production capacity has limited growth of the OLED market, despite greater demand for the technology than displays vendors expected. But Park believes recent investments by Samsung Mobile Display and LG Display should begin to ease those constraints and enable higher growth for Universal Display in the second half of this year.
Beyond displays, general lighting should also provide an entirely new commercial market for OLEDs, though timing and the size of that market are less certain, Park said.
SHARE ACTION: Universal Display shares added 84 cents, or 2 percent, to $41.50 in afternoon trading. The stock has traded from $15.88 to $63.58 in the past 12 months.