The No. 2 name in sound technology, DTS
What analysts say:
- Buy, sell, or waffle? With 11 analysts covering DTS, five rate it a strong buy, five say "hold," and one analyst is giving it some static with a sell.
- Revenues. Despite the general bullishness, revenues are expected to tumble 53% to $13 million as the company exits the digital cinema business.
- Earnings. Profits are also expected to quiet down, falling 71% to $0.11 per share.
What management says:
After more than a decade of building DTS into a multichannel digital-sound competitor to industry leader Dolby
What management does:
While the reorganization knocked down operating and net margins, the company eventually expects better profits, since it will simply be focusing on licensing its technology. Margins are very high in such a streamlined business, and management expects gross margins in the 97% to 98% range, with operating margins around 20% or so. That would reflect a much smaller business carrying the entire corporate cost structure.
12/05 |
03/06 |
06/06 |
09/06 |
12/06 |
|
---|---|---|---|---|---|
Gross |
75.2% |
74% |
73.8% |
73.5% |
75.8% |
Operating |
15.8% |
18.4% |
15.9% |
12.3% |
9.7% |
Net |
10.5% |
13.9% |
14.1% |
11.9% |
3.9% |
One Fool says:
While DTS is seen as something of a "me-too" company in comparison to Dolby -- maybe more of an "oh yeah" one, as in, "oh yeah, there's another logo on my sound equipment" -- it's actually very well positioned to grow from its smaller, more focused base. Like Dolby, it has previously enjoyed healthy expansion as a result of DVD sales, and when (as opposed to if) a standard is finally developed for next-generation players, it will be there as part of the sound standards incorporated by manufacturers. Similarly, the switch to HD television tuners will include DTS right alongside Dolby. Since that mandated change to all TV tuners sold took effect March 1, expect DTS to report a decent earnings picture -- perhaps surprising analysts, even -- as much as Dolby did. Consumer electronics have served Dolby well, and you can expect DTS to walk in lockstep with its rival in the consumer electronics arena.
Further 5.1-channel Foolishness:
DTS has earned a two-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!
Dolby is a three-time recommendation of Motley Fool Stock Advisor. A 30-day trial subscription lets you sample the sweet sounds of David and Tom Gardner's flagship investing service, which is beating the market by 40 percentage points.
Fool contributor Rich Duprey owns shares of Dolby, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.