Tune into TiVo

04/26/2017 2:50 am EST


Crista Huff

Editor, Cabot Undervalued Stocks Advisor

TiVo (TIVO) is a digital entertainment company that provides technology licensing and related services, which enable people to access online and televised entertainment, asserts Crista Huff, growth and income expert and editor of Cabot Undervalued Stocks Advisor.

The company has about 6,000 existing and pending patents on intellectual property. TiVo serves 25 million homes in over 70 countries.

Rovi purchased TiVo for $1.1 billion in September 2016, and changed the merged-company’s name to TiVo. The new Tivo is led by experienced management from Rovi, while several former TiVo board members have joined the new board of directors.

TiVo sells to most major electronics manufacturers and entertainment service providers, except Comcast (CMCSA).

Management expects revenue to grow from $800 million in 2016 to $1 billion in 2018; and to achieve $100 million in cost synergies, with 65% of the savings to take place in the first 12 months.

The merged company reported $1.42 earnings per share (EPS) in 2016 (December year-end). The consensus estimate of five analysts projects $1.60 and $2.26 EPS in 2017 and 2018, representing 12.7% and 41.3% growth rates. The corresponding P/Es are 11.6 and 8.2. This stock is seriously undervalued.

In an important recent development, TiVo declared its first-ever quarterly dividend this winter. At $0.18 per share, that amounts to an annual yield of 3.8%. Frankly, it’s highly unusual for a new dividend to be so big.

TIVO is a small-cap stock. Investors should be aware that small-cap stocks tend to be volatile.The share price rose to a recent high of $23.40 at the time of the September 2016 merger, and later ratcheted down near $18 by early February 2017.

The price spiked upward in mid-February when the new dividend was announced. I think we’ve seen the bottom of the new company’s trading range. There’s strong projected earnings growth and a big dividend yield which will attract both growth investors and dividend investors.

As the company begins reporting post-merger quarters, and the market gains confidence in the company’s direction, management and profitability, we could see TIVO retrace its recent high around $23, giving new buyers a potential 24% capital gain in 2017. Strong Buy.

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