DTS Inc. (DTSI)

DTS Inc. (DTSI) - Increasing demand for DTS technologies in emerging applications such as cars and PCs augur well for the company's earnings growth post-recession. The company is also diversifying its business in the virtual audio technology and broadcast market, and is enhancing the use of DTS technology in standard definition applications, which we believe will drive revenue growth in 2009 and beyond.

Moreover, with the completion of the sale of its Digital Cinema business, DTS should be able to concentrate on the Consumer business and benefit from the anticipated acceleration of the high definition cycle.

Nevertheless, we think Street estimates are high ($0.72 for 2009E vs. Zacks $0.51) and do not incorporate the risks posed by a potentially deep and protracted consumer-led economic slowdown, which could choke demand from the auto and PC markets. Valuations are lofty even using Street estimates, (24x 2009 EPS), at a time of murky visibility.