The Zacks Analyst Blog Highlights: Apple, DTS, SRS Labs, Dolby Laboratories and Sony

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Apr 25, 2012, 09:30 ET

CHICAGO, April 25, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Apple (Nasdaq: AAPL), DTS Inc. (Nasdaq: DTSI), SRS Labs (Nasdaq: SRSL), Dolby Laboratories Inc. (NYSE: DLB) and Sony Corp. (NYSE: SNE).

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Here are highlights from Tuesday's Analyst Blog:

Apple Earnings Crush It Again

Apple (Nasdaq: AAPL), the world's largest company by market cap and recent investor darling, reported great earnings just a few minutes ago. The company saw profits come in at $12.30/share well above the Zacks Consensus Estimate of $10.03/share, pushing the stock up over 7.2% immediately after the release.

This solid beat comes after some were beginning to grow worried over the firm and its impressive growth trajectory. Concerns were building over the recent price slump and anxiety over a possible decline in subsidies from telecom giants AT&T and Verizon for the iPhone.

However, these worries were easily dispelled after the company's release as AAPL once again crushed lofty expectations for growth in many of its key products.

Some of the key stats:

Revenues come in at $39.19 billion compared to the Zacks Consensus of $36.58 billion
iPhone sales up 88% to 35.1 million units
iPad sales up 151% to 11.8 million units
Gross margin rose 600 basis points to 47.4%
International sales made up 64% of total revenue

While the huge beat may have come as a surprise to some, those who have been following the earnings estimate trend in AAPL probably aren't too surprised as analysts have generally been quite bullish on the tech giant.

The company has seen earnings estimates rise almost universally over the past month with seven analysts raising their estimates in the past seven days and 13 raising their estimates in the past 30 days. Meanwhile, on the downside, only one analyst bumped their target lower out of the 33 estimates that are in the Zacks Consensus Estimate.

Furthermore, the magnitude of the move in estimates has also been impressive in Apple over the past quarter. Just a month ago the Zacks Consensus Estimate called for earnings of $9.76/share while the 90 days ago number was at $9.13/share. Given these figures, estimates have moved up by about 9% over the course of the quarter including a nearly 2.7% increase in the past 30 day period.

Clearly analysts were expecting another robust report and AAPL delivered once again.

DTS Set to Acquire SRS Labs

A leading provider of high definition (HD) audio technology, DTS Inc. (Nasdaq: DTSI) recently announced that it has entered into a definitive agreement to take over SRS Labs (Nasdaq: SRSL) in a 50:50 cash-and-stock deal totaling about $148.0 million. DTS expects the acquisition to be completed by the end of the third quarter of fiscal 2012.

Under the terms of the agreement, SRS shareholders have the option of choosing from either $9.50 in cash or 0.31127 DTS shares for each SRS share they hold. DTS expects to pay the cash portion from its existing cash balances, which stood at $50.8 million at the end of December 31, 2011. The offer price reflects a premium of 38.0% per share over the share price of SRS on April 16, 2012.

SRS is a leading provider of audio processing and enhancing technologies and boasts of a strong clientele, including some of the most well known brands of the electronic industry such as Samsung, LG and Sharp. However, its vast audio patent and trademark portfolio remains the most important asset.

Post acquisition, DTS is expected to have more than 1000 audio patents and trademark in its kitty, which will help the company to expand its services in the rapidly growing mobile industry and other network-connected devices. Since SRS technology is widely used in televisions (particularly home entertainment), smartphones, and virtual audio applications (PCs), we believe that the acquisition will boost DTS' product portfolio, thereby expanding its customer base going forward.

Moreover, the acquisition will help the company to meet the growing consumer demand for high-quality audio regardless of the platform used. Apart from patents, the acquisition will also generate significant cost and operating synergies going forward. DTS expects the acquisition to generate at least $8.0 million in estimated annual cost savings starting from 2013. DTS expects the transaction to be accretive on a GAAP basis by 2013.

We believe that DTS will continue to gain market share riding on its strong product portfolio, robust growth from the Blu-ray market and increasing penetration into network connected devices. However, we believe that the volatile macro environment and sluggish consumer spending will remain headwinds for Blu-ray sales going forward.

Moreover, we believe that the strong growth of network connected devices will eventually cannibalize the sales of DVD-based products and Blu-ray sales. This in turn will hurt DTS' growth over the long term. Further, the company faces significant competition from Dolby Laboratories Inc. (NYSE: DLB), Sony Corp. (NYSE: SNE) and privately-held THX Limited, which will hurt its profitability going forward.

Thus, we remain Neutral over the long term (6-12 months). Currently, DTS Inc. has a Zacks #4 Rank, which implies a Hold rating in the near term.

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