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Show Me the Money

Stock (Symbol) Stock Price

Rovi (ROVI)

$56

Data is as of Expected to Report Sector

December 14, 2010

Feb 7

Technology

Sharek’s Take
David SharekRovi has a slow quarter coming. Most of ROVI’s revenue comes from cable subscribers and TV sales, and both are slow right now. Still, that hasn’t hurt the stock — even lowering guidance for next quarter didn’t cause ROVI shares to fall.Why? Rovi is expanding into Internet menus, like GoogleTV and Apple TV. This will bring new growth opportunity to this company that has more than 4,600 patents issued or pending.If you’re not already familiar with the company, Rovi makes the electronic menu guides on your TV, cable box and DVD player. The company earns recurring revenue of around $0.25 per cable subscriber per month and around $8 up front for every DVD player sold with its guides, which include Total Guide (TG). TG controls your cable TV, DVR, Internet-based content as well as movies, music and photos on your home computers. Total Guide has on-screen ads which bring in revenue too. Total Guide could be HUGE with one analyst (Ralph Schackart, William Blair) suggesting ROVI could make $4.32 to $7.14 in 2013.
One-Year Chart
The one-year chart looks marvelous for those who already own shares. New investors might want to wait for a better entry point, as this stock is 24% past its last breakout (buy) point. Here you can see profits are expected to climb 6% next quarter then rebound to 20% the quarter after. The P/E is in black because I think the stock is fairly valued.
Earnings Table
ROVI’s profits have been growing 45-67% during the past four quarters. Revenue rose 21% last quarter, much higher than the 13% two quarters ago.ROVI beat the street by 7 cents last quarter, but this news was dampened by the fact the company guided lower for next quarter (get it, guided).Annual Profit Estimates stayed steady. Since annual estimates didn’t jump, ROVI can’t be considered a top-tier growth stock.The next four quarters show good-and-bad profit growth. I hope ROVI can beat the street and keep growing at 20%.
Fair Value
I continue to think ROVI is worth 25 times earnings. Upside to fair value in 2011 is only 11%, but holding the stock through 2012 could/should yield better returns.
Ten-Year Chart
Rovi used to be named Macrovision (MVSN). Macrovision IPO’s in 1997 and changed its name in 2009. Macrovision crashed during 2000 like many tech stocks did. I think ROVI’s on stabler ground now that its menus are fully integrated into people’s lives, so profits should be able to grow more consistently than in past years.
Power Ranking Bottom Line
Growth Portfolio

8 of 18

I think new opportunities into Internet menus will fuel profit growth, but it seems like Rovi isn’t getting enough money in these new deals. Show me the money! I want explosive profit growth. You own the patents. You need to tell Apple and Google what they need to pay.Right now Rovi is ranked 8th in the Growth Portfolio Power Rankings, but I’m not real hot on the stock. ROVI seems fairly valued. Management needs to get more out of new initiatives (of which terms are not disclosed) and show investors the money. Right now, ROVI isn’t a candidate for the Aggressive Growth Portfolio.
Aggressive Growth Portfolio

N/A

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