Brean Capital Sees A 'Slow Slog Upward' For TiVo

Brean Capital commented on TiVo Inc. TIVO Wednesday following its earnings release and maintained a Buy rating with a $14 price target.

Analyst Todd Mitchell felt that TiVo would "grind higher" in fiscal 2016, however, its "cost basis continues to remain stubbornly high, with downward pressure on gross margins offsetting much of the operating leverage provided by higher revenues and lower operating expenses."

Mitchell continued to think that it would take another two years before the company "is profitable excluding litigation driven licensing arrangements which terminate in F2018."

Management suggested that an expansion of revenue would occur from sources such as DigitalSmiths, which was not linked to subscriber growth, however, Mitchell expected that such ancillary revenues would "need to materialize before the market accords TiVo with value for them."

Reflecting on Q4, the analyst said it was a "modest beat" with a "9 percent increase in F4Q15 Service & Technology revenue to $91.7 million, adjusted EBITDA of $24 million, and non-GAAP EPS of $0.06."

The company also added 340,000 new subscribers in Q4, beating the firm's expectation of 327,000 net adds.

Looking ahead at fiscal 2016, the analyst expected TiVo to add 1.23 million new subscribers, down 2 percent from 1.263 million in fiscal 2015, but higher than the firm's prior estimate of 1.2 million.

Mitchell projected an 11 percent increase in Service & Technology revenue at $329 million for fiscal 2016 with a 21 percent increase in adjusted EBITDA. Non-GAAP EPS was estimated at $0.45, up from $0.25 in the prior year.

Mitchell concluded, however, that fiscal 2016 would be a "slow slog upward" for the stock.

TiVo closed at $11.56 Wednesday, up 2.71 percent.