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Value

Rovi Corp. (ROVI - Snapshot Report) has been divesting non-core assets in order to focus on its core business. Most recently, this provider of digital entertainment technology solutions announced its plan to sell the Rovi Entertainment Store, leading the Zacks #1 Rank (Strong Buy) to raise its fiscal 2012 earnings guidance.

ROVI remains significantly undervalued, with a forward price-to-earnings (P/E) multiple of just 10.8 and low price-to-book (P/B) multiple of 1.2.

Impressive Q3 for Rovi

In November, Rovi announced third quarter earnings of 35 cents per share, comfortably surpassing the Zacks Consensus Estimate by 52.2%. Revenue of $169.6 million also surpassed expectations.

Following the announcement of the sale of the Rovi Entertainment Store (which was classified as discontinued operations), the company restated its results for the first three quarters of 2012. As per the restatement, Rovi generated revenue of $165.6 million in the third quarter of 2012. Earnings (excluding equity compensation and other one time items) were 56 cents per share in the reported quarter.

Rovi trimmed its revenue guidance for 2012. The company now expects revenue between $645.0 million and $650.0 million, compared to the earlier range of $660.0 million to $670.0 million.

However, the earnings outlook improved. Product rationalization and operational efficiencies are helping cost control and margin expansion at Rovi. The company now expects earnings between $2.05 and $2.10 per share, versus the previously guided range of $1.80 to $1.90 per share.

Earnings Estimates Moving Up

The Zacks Consensus Estimate for 2012 jumped 24% over the last 90 days to $1.44 per share. Specifically, earnings estimates advanced nearly 11% in just the last 7 days following the announcement of the Entertainment Store sale.

Meanwhile, the Zacks Consensus Estimate for fiscal 2013 increased 13% over the last 90 days to $1.56, including a gain of more than 6% in 7 days.

Impressive Valuation

In addition to low P/E and P/B multiples, the stock looks attractive even on a price-to-sales (P/S) basis. Its P/S multiple is 2.5, much lower than the industry average of 4.3. Moreover, Rovi’s PEG ratio of just 0.86 indicates that the stock is undervalued given the expected growth of 12.5%.

Rovi Corp. provides solutions that guide users to different facets of digital entertainment. Rovi’s solutions help users to discover digital content related to television, movies, music, books and games. The company also provides Video delivery and advertising solutions. This $1.72 billion company primarily serves consumer electronics manufacturers and different service providers (cable, satellite, telecommunications, mobile and Internet companies). Rovi faces significant competition from Yahoo! (YHOO) and Google (GOOG).


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