Sonic Solutions (SNIC) creates software tools that enable the recording and storage of digital audio and video content in various compact disc (CD), digital video disc (DVD) and other related formats. March results were postponed due to an ongoing options inquiry, and the firm has scheduled a conference call for June 10th, 2008.
Toshiba's recent announcement that it will halt HD DVD and commit to the Blu-ray format is perhaps the final battle in the format wars. SNIC is poised to capitalize on the decision as studios may ramp for the 2008 holiday season. Consequently, we are continuing our Hold rating on shares of SNIC.
The shares are currently trading at a 22.5x multiple of our 2009 EPS estimate (P/E). Sonic has a strong product portfolio, a solid marketing strategy, a large market share and a steadily growing customer base. These factors indicate the steady growth profile of the stock. However, there is strategic risk involved in transitioning from an OEM model to a retail model.
While the Roxio acquisition added to the top line, the margin impact has been negative. With the ongoing options inquiry and limited financial output coming from the company we continue to rate the shares a Hold. Our target price of $10.00 corresponds to a 23.8x P/E multiple.
Read the full analyst report on SNIC
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