Rovi (ROVI) Defended at B. Riley Following Negative Court Ruling vs Netflix

B. Riley maintained a Buy rating on Rovi Corp. (NASDAQ: ROVI) with a price target of $29.50. Shares weakened pre-market after Rovi said a ruling granting Netflix’s motion for summary judgment on five patents related to various features provided by the over-the-top (OTT) video service. In the view of analyst Eric Wold, the news is negative but is irrelevant to “big 3/4" renewals and estimates.

"ROVI shares have already declined by 30% over the past five months as, we understand, investor concerns have heightened around the potential implications of a negative outcome in the litigation with Netflix on both the growth outlook and the “Big 4” license renewals. Therefore, while we do not believe the NFLX litigation is over (with the potential for other patents being brought into the mix), we stand by our prior statements that, following the recent slide, ROVI shares are already pricing in the worst case scenario of that litigation with a favorable risk/reward (especially given the projected ramp in EBITDA heading into 2016)," said Wold. "Should ROVI shares experience any further weakness on this ruling, we recommend adding to positions and are reiterating our Buy rating and price target of $29.50."

"We fully expect ROVI to “appeal” this ruling by bringing additional patents into the litigation against NFLX (while this ruled on 5 patents after 3 were pulled out, we believe ROVI has plenty of other patents to bring into play)," continued the analyst. "Keep in mind that it was NFLX that initially sued ROVI, which we believe is key in the choice of the five patents involved in the litigation. Nevertheless, as ROVI management did not include any NFLX proceeds within guidance and our model did not include any revenues from NFLX, this ruling has no impact on our estimates or guidance."

Wold added, "Given that the “Big 4” license renewal discussions (Comcast [CMCSA; N/R], Time Warner Cable [TWC; N/R], Dish Network [DISH; N/R] and DirecTV [DTV; N/R]) cover a set of patents with significantly broader reach and use-cases than the original five involved in the NFLX litigation, we continue to believe this ruling is unlikely to have any impact on those discussions. Furthermore, as the recent license renewal with Charter Communications (CHTR; N/R) covers any acquisitions with favorable economics to ROVI, we could see risk lowered with the “Big 4” dwindled to “Big 3”."

For an analyst ratings summary and ratings history on Rovi Corp. click here. For more ratings news on Rovi Corp. click here.

Shares of Rovi Corp. closed at $17.54 yesterday.

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