On October 17th, 2012, we wrote “10 Bargain Companies Nearest 52-week lows“. Rovi Corp. (ROVI) stock is trading around $14.53 versus its 52-week range of $9.9-$51.83, down 70% for the year. The stock trades at a P/E multiple of 8.5 times, and a forward P/E of 7.5 times. As of June 30th, 2012, the institutional holders of the stock are Capital Research Global (8%), Wellington Management (7%), Ameriprise Financial (5%), The Vanguard Group (4.5%), and T. Rowe Price (3.5%).
Rovi Corporation provides digital entertainment technology solutions for the discovery and management of entertainment content.
A quick look at the fundamentals:
As of June 30, 2012, the company has around $860 million in cash & short-term investments, and $1.5 billion in long-term debt, which includes amounts outstanding under the company’s term loan, and convertibles notes due 2040. More importantly, the company has $485 million of debt that comes due within 1 year.
Debt/Total capitalization has increased from a range of 41-46% in 2011 to a range of $50-60% in 2012. The company will need to address the higher debt levels in the short-term.
The company recently announced the intension to buyback $80 million of stock through the Accelerated Share Repurchase (ASR). Although this is a good use of capital, it would be encouraging to see the company making aggressive debt buyback plans.
Rovi’s new President & CEO Tom Carson puts a positive fundamental twist to the company’s story by focusing on new technologies, and the company’s financial objectives. Although a long-term positive, a continued positive impact is yet to be seen.
Cutting operating expenses has been the focus of the company. The expectation is to cut operating expenses by $20 in 2013. Another positive, which will help the company survive in a tough macro environment.
Conclusion: It seems clear that management has several challenges related to macro and fundamental weakness. That being said, with $700 million in annual revenues, positive free cash-flow, and a new aggressive management, Rovi deserves to be in your portfolio radar screen.
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