JPMorgan Says Buy The Dip In Rovi

Shares of Rovi Corporation ROVI have plunged more than 9 percent Wednesday after DIRECTV DTV unveiled its Web TV service plans. But, JPMorgan said investors should take advantage of the recent dip and buy the stock.

DirecTV, a subsidiary of AT&T Inc. T, said it plans to unveil the video streaming service in the fourth quarter of 2016.

New Services Provided By DirecTV

DirecTV's new services allow access to videos over a wired or wireless Internet connection from any provider and from virtually any device. It will be available via three streaming options: DIRECTV Now, DIRECTV Mobile and DIRECTV Preview. These services will not require annual contracts, satellite dishes or set-top boxes.

Related Link: JPMorgan Raises Target On Rovi From $23 To $34, Says AT&T-DirecTV Deal Is Price Floor

Investors fear that once the DirecTV service launches, it would affect Rovi's traditional pay TV-driven revenue. However, JPMorgan analyst Sterling Auty defended Rovi and said the current weakness presents a buying opportunity.

Auty said the negative reaction is coming from investors wondering if this would mean subscribers would switch from a current provider over to the likes of DirecTV that has a fixed contract and thus lead to net lower revenue.

Analyst's Take

Auty said he believes investors are missing the idea that OTT (over-the-top), or second screen use case, is an incremental opportunity on the whole. Not only did it help improve the size of the AT&T/DirecTV contract, but along with its recent joint venture, puts Rovi in a position to lock in incremental new customers that will take revenue higher.

With the contract expirations from Comcast Corporation CMCSA and DISH Network Corp DISH coming in the next 30–40 days, the analyst thinks the potential for two more very positive catalysts in the next quarter or two (if negotiations run past contract expiration) is high. This should be motivating investors to look to buy shares here rather than sell. The analyst maintained his Overweight rating on Rovi shares.