Dolby Shares Have Traded Up On Concept, Not Numbers; JPMorgan Downgrades

Shares of Dolby Laboratories, Inc. DLB are up 29 percent year-to-date. JPMorgan’s Paul Coster downgraded the rating for the company from Overweight to Neutral, while maintained the price target at $42.

Dolby’s shares have climbed about 41 percent since January, versus a 6 percent gain in the S&P, with investors becoming “enamored” with the growth prospects associated with the company’s new initiatives, such as Dolby Cinema and Dolby Vision, as well as with the inclusion of Digital Plus in Apple’s iOS 9.3, analyst Paul Coster commented.

Following the run-up, the shares seem to already reflect Dolby’s growth, although this may not have a significant impact on the company’s top line “until 2017, possibly 2018,” Coster added.

Up On Concept, Rather Than Numbers

Investors need to be “nimble,” amidst the backdrop of a volatile market in 2016, the analyst believes. He added that the stock had ramped up “on concept, not on numbers.”

“We share the enthusiasm regarding the HDR licensing technology, and we do believe Dolby Cinema will grow rapidly; however, we believe the HDR unit volume will be muted through 2017 (LG TVs will probably be priced well above $2,000 initially), and the Dolby Cinema revenue contribution scales quite slowly in our view,” the JPMogran report noted.

Although Apple iOS 9.3 licensing may contribute $30 million in high-margin revenue, on an annualized basis in 2017, there is an offsetting risk in the ongoing decline in CE/PC-related revenues, Coster added.