Acacia Research (ACTG) Appears Well-Positioned for Top-, Bottom-Line Growth in FY15 - Cowen

Cowen and Company affirms Acacia Research (Nasdaq: ACTG) at Outperform with a price target of $24 ahead of Q4/FY14 results, which should be released sometime in the latter-part of January 2015.

Analyst Bryan Prohm offered the following commentary:

Our Latest Thoughts on FQ4:14 (Dec.)

We view Street FQ4:14 revenue/non-GAAP EPS estimates of $44.3MM/$0.18 as achievable given: 1) the company has announced ~21 New Agreements Executed (NAE) quarter-to-date (versus 20 NAEs in total during FQ3:14), 2) ~25% of QTD NAEs cover top-tier portfolios, 3) a review of the company's near-term litigation calendar suggests several major revenue events could materialize over the near-term (these could be driven by joint dismissals, resolution of ongoing trials or negotiations, and/or upcoming trial or Markman hearing dates on top-tier portfolios), 4) the frequency and magnitude of transient NAEs (i.e. deals reached ahead of key trial dates or absent any litigation whatsoever) appears to be on the increase, likely as a consequence of the broader shift in the company's strategy.

Solid Positioning for F2015

We continue to believe ACTG should begin to realize the true impact of its strategic decision to adjust its business model to prioritize monetization of a smaller number of higher-value top-tier patent portfolios during F2015. Our F2015 revenue and non- GAAP EPS estimates of $276.5MM/$2.25 are well above the Street given: 1) there are 20+ top-tier portfolio trial dates set for 1H15 (where there is a strong correlation between dates and large settlements), 2) the shift to overweight quality should more than offset higher licensing cost and risk, while helping to build brand and scale as new partnerships and portfolios are added, 3) there is significant operating leverage in the model as revenue growth accelerates and MG&A expenses are managed flat to slightly down, 4) the maturation of inter partes review (IPRs) should have a net positive effect on market efficiency (i.e. faster price discovery and licensing) and could lower long-term litigation costs, 5) the impact of a meaningful increase in toptier portfolios and/or partnerships (e.g. to 20-25 from current 11-12), the potential for lower litigation expenses and the opportunity to negotiate multi-year structured licensing deals across its top-tier portfolios are still largely outside our estimates.

Estimates and Valuation

We would use the recent >10% pullback to initiate or add to long-term positions at an attractive level (less than 8x our F2015E non-GAAP EPS; less than 6x ex-cash) given Street F2015 revenue/non-GAAP EPS estimates of $191MM/$1.31 appear to discount any sustained deal momentum beyond F1H:15. We continue to believe ACTG's progress and execution are best evaluated over 12-24 month periods and are
introducing F2016 revenue/non-GAAP EPS estimates of $325MM/$2.75.

For an analyst ratings summary and ratings history on Acacia Research click here. For more ratings news on Acacia Research click here.

Acacia Research closed at $17.39 yesterday.

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