Wedbush Morgan analysts Craig Berger and James Schneider sent a note to clients reiterating their bullish stance on video chipmaker Zoran Corporation (ZRAN). Key excerpts from the note:
* Retail channel checks for DVD still look healthy in the U.S., with no change in softness for Asia; we think our latest estimates account for modest growth for 2006.
* We believe Zoran's TV segment remains underappreciated, with rolling FCC digital tuner mandates possibly driving some Q2 upside.
* Recently announced licensing agreement with MediaTek likely to drive gross margin and EPS upside, reinforcing our view that Q1 guidance is conservative.
* Zoran must maintain and grow share in digital cameras to hit our 2006 forecast, a risk.
* Zoran's stock compensation expense is the highest in our coverage universe, also a risk.
* Maintain estimates and reiterate BUY as we look for Q1 margin and EPS upside, while the firm's revenue diversification and margin expansion stories remain on track.
ZRAN 1-yr chart: