Risk/Reward in TiVo Is Extremely Compelling (TIVO)
November 11, 2010 1:20 PM
A fairly obvious trade is presenting itself in shares of TiVo (NASDAQ: TIVO). The company has been involved in patent infringement litigation with DISH Network (NASDAQ: DISH) and Echostar (NASDAQ: SATS) since 2004. At pretty much every step of the way, TiVo's claims have been upheld, including by the U.S. Patent Office this last October.
Currently, the U.S. Court of Appeals for the Federal Circuit is conducting an en banc review of an earlier decision, which upheld a lower court's ruling in TiVo's favor with regard to the infringement of company patents by DISH and Echostar. The CEO of TiVo has said that he expects the litigation to be resolved by February or March of 2011.
The reason why this trade makes sense is because of the risk/reward surrounding the uncertain outcome of the litigation. According to Janney Capital Markets analyst Tony Wible, TiVo has a 60% chance of winning the en banc review. According to Lazard analyst Barton Crockett, the stock is worth $19.45 if the previous decision is upheld and $6.28 if the decision is overturned. Citigroup (NYSE: C) analysts have expressed similar sentiments, believing the original decision in TiVo's favor will be upheld.
