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Could TiVo Stock Double? 1 Analyst Thinks So

By Rich Smith - Feb 2, 2018 at 12:56PM

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B. Riley FBR sees multiple ways for TiVo investors to profit.

Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

2017 was not kind to TiVo (TIVO) investors, and so far, 2018 doesn't look much better, with the stock down 7% since the year began. On the one hand, that's obviously not good news. But on the other, it does give investors a chance to buy TiVo stock on the cheap.

Or so say the analysts at investment bank B. Riley FBR. TiVo stock has suffered much over the past year, losing 24% of its value, and underperforming the S&P 500 by a whopping 48 percentage points. But in a report published on today, the analyst makes the case that after falling so much, TiVo has now become a bargain.

Here's what you need to know.

DVR and remote control

DVRs are a dime a dozen -- but there's only one TiVo stock. Image source: Getty Images.

TiVo's tumble

From mid-November last year to early February this year, TiVo stock has tumbled a whopping 25%, despite notching a litigation victory in the interim. Court wins notwithstanding, investors just don't seem to have much faith that TiVo can produce consistent profits.

They may be right to worry, too. Despite upgrading TiVo shares today, B. Riley FBR warns that TiVo will probably give investors "weak 2018 guidance" when it reports Q4 earnings (which should come out later this month ). Despite that risk, however, B. Riley sees TiVo stock as bargain-priced and carrying "minimal downside risk" -- because the sell-off has already happened and the expected bad news is baked into the stock.

Predicting an upturn, and upgrading TiVo

Predicting a bounceback in TiVo's fortunes, B. Riley assigned the stock a buy rating this morning, and set a $18 price target on the stock -- predicting, essentially, that TiVo stock that trades for less than $14 today could produce profits of as much as 29% this year.

And that's not all. Under various "upside scenarios," B. Riley believes TiVo could actually grow well past $18 if one of several things go right. It could even climb as high as $35 -- more than doubling today's share price.

What are these "upside scenarios" you speak of?

What could go right for TiVo at this point? Well for one thing, the company could ink a technology licensing deal with Comcast (CMCSA).

In December, TiVo signed a six-year tech licensing deal with Altice USA. Last month, it agreed with Alphabet to expand a multiyear patent license agreement as well. About three weeks ago, TiVo filed patent infringement lawsuits against Comcast alleging that Comcast's X1 DVR platform infringes on technology invented and patented by TiVo -- seeking to bring one of the nation's biggest cable providers to heel as well.

If this litigation goes well, it could mean great things for TiVo, perhaps even the doubling in share price that B. Riley predicts. Alternatively, B. Riley isn't ruling out the possibility that someone might decide to simply buy TiVo at a premium, reversing TiVo's slide in share price in an instant.

The upshot for investors

Are these simply the typical pie-in-the-sky dreams common among stocks that have fallen on hard times -- that a white knight will ride in and save the day (and the stock?) Perhaps. But it's also worth remembering that TiVo has a viable business in its own right.

It's true that near-term prospects for GAAP profits seem dim. Analysts surveyed by S&P Global Market Intelligence predict, on average, that TiVo won't turn profitable before 2019. For that matter, even then, the $0.18 in profits per share TiVo is predicted to earn in 2019 values the stock at an incredible 77 times forward earnings.

Despite the high P/E ratio, however, TiVo generated nearly $80 million in positive cash profits (free cash flow) over the past year. The same analysts who give such grim projections for GAAP profitability also see TiVo's free cash flow growing steadily over the next three years, to as much as $276.5 million by 2020. If that comes to pass, well, then TiVo stock at $1.7 billion in market capitalization today doesn't look all that expensive after all.

Long story short, I can't say that TiVo is an obvious bargain today. But given the potential "upside scenarios" that B. Riley identifies, and given the longer-term prospects for TiVo growing its profits, I do believe the analyst makes a strong case in favor of buying TiVo today.

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