Gemstar: Writer’s Strike Creates Buying Opportunity

Anyone who watches TV is aware of the rerun tsunami. The writer’s strike may have ruined our opportunity to enjoy new episodes of our favorite shows, but to offset the downer I recommend taking a look at shares of Gemstar-TV Guide International (GMST).

GMST engages in the development, licensing, marketing, and distribution of products and services for television guidance. The company dominates the sector with its popular print publication TV Guide (consistent 3.2 million copies in national circulation), and during Q1 ‘07 announced partnerships for an IPG (Interactive Program Guide) with search and mobile goliaths Google (GOOG), Yahoo (YHOO), Verizon (VZ) and Sprint (S).

Buffetology tells us that when an industry or company faces short-term negativity, savvy investors should swoop in and profit as the short-term problem subsides. In this case, GMST is experiencing short-term negativity from the writer’s strike. However, no strike lasts forever, and once this one concludes couch potatoes galore will resume their favorite pastime: planning show schedules and surfing through the TV Guide.

GMST has additional favorable characteristics that will retake center stage once the strike is over. In July, GMST announced it will explore strategic alternatives to maximize shareholder value, including a possible sale of the company. Since then, the company has executed several new licensing deals such as the ones mentioned above.

In early Q3, Citadel Investments (an 8.4% shareholder) filed a 13D on GMST stating “we firmly believe that Gemstar-TV Guide has the potential to realize several billion dollars of incremental equity value over the next years based solely on the company’s strategic positioning and management’s ability to execute on its strategy.”

Regarding GMST’s potential sale, on Friday, Nov. 30th, while Janco Partners reiterated a Buy rating (price target of $7.10) on Gemstar, Bloomberg reported that a sale is still likely. News Corp (NWS) is the largest shareholder of GMST (~ 41% shareholder). During News Corp’s 3rd quarter conference, management said they are still actively pursuing the sale of their GMST holdings.

Whether GMST is sold in the near future or not, I believe Citadel will ensure all pieces of the company are properly valued based on the tremendously bright future of the company’s innovative and adaptive business model. Thus, once the writer’s strike is over, I expect demand for GMST to resume like your regularly scheduled programming.

Disclosure: SmartGuyDMoney is long GMST. He currently works in the media space and has top tier experience in media, marketing, and sales.

GMST 1-yr chart:

Comments

[Shane Milburn]

Can you help with some historical perspective. Why did GMST lose money from 2000-2004, becomeing slightly profitable in 2005? It's not really showing the consistency I'd like to see, but current business looks better.