As Sale Looms, Gemstar Rates A Look

8/03/2007 8:00 PM Eastern

Natixis Bleichroeder media analyst Alan Gould remained bullish on Gemstar-TV Guide International last week, maintaining his $7.50-per-share price target on the stock after it reported encouraging second-quarter results.

Gemstar, which said last month that it was exploring strategic alternatives, including a sale, has seen its stock price dip below $6 per share, as no clear bidder for the company has stepped forward.

But Gould said that despite the price decline, the company could still fetch a healthy price.

Gemstar reported second quarter revenue of $133.3 million (up 16.8%), cash flow of $24.3 million (up 45.6%) and earnings of 5 cents per share, beating analysts’ consensus estimates by one penny. Gould wrote in a research report that the majority of Gemstar’s strength in the quarter was due to its guidance technology and solutions business, which reported a 40% rise in revenue to $50.5 million in the period. Gould wrote that the guidance business is benefiting from consumer migration from analog to digital television.

While its media networks division showed slower growth — revenue was up 3% to $48.5 million and cash flow declined 18% to $13 million – Gould wrote that Gemstar’s greatest potential lies in its programming guides and mobile technologies.

“We would anticipate a buyer paying a minimum of $7.50 per share, plus a strategic premium if a competitive bidding situation arises,” Gould wrote. Bolstering Gemstar’s value is its intellectual property portfolio, highlighted by recent licensing deals, he added.

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