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Vince Martin
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As a Senior Editor on the SA Pro Content Team, my responsibility is to identify the best possible content for the Pro platform, manage existing contributors and develop new ones for that content, and work with other departments to make the Pro platform a success. I was a contributor to Seeking... More
  • TSRA Consolidates at 52-Week Low 0 comments
    Jun 19, 2011 1:04 PM | about stocks: TSRA

    Tessera Technologies (NASDAQ:TSRA) licenses patents for technology related to the semiconductor industry. The company is a value investor's dream, with $9.65 in cash per share, 61% of the company's closing price of 15.70 (as of June 17th). With an enterprise value just north of $300 million, Tessera:

    • has delivered free cash flow totaling $280 million in the last four years
    • has a trailing EV-earnings ratio of 5.2
    • has a forward EV-earnings ratio of 4.6, based on analyst estimates of $1.32/share for FY11 (numbers from Reuters Finance)

    TSRA is currently trading near its 52-week low of 14.96, though it is consolidating a base of support also reached in mid-March 2011 and early September 2010. While revenues may be impacted by a downturn in the semiconductor industry, as licensing deals provide lower earnings, TSRA's lack of facilities (capex was only $30MM each of the last two years) and strong cash position provide plenty of cushion. And, as noted a few weeks back by Seeking Alpha contributor Frank Voisin, Tessera has a strong history of winning litigation. The company currently has suits outstanding against Sony, Motorola, AMD, and other manufacturers, and a win – or a favorable settlement – in any of these cases could provide a boost to the stock.

    With support consolidating, and a strong floor with the 9.65 in cash, this seems an attractive spot to purchase TSRA stock. With earnings coming in late June, a short-term call could be used to try and capture a bounce off the lows. The July 16 call is available for an ask of .60; this trade is profitable should TSRA bounce 5.7% from Friday's close to reach $16.60 or higher. While the naked call purchase obviously has a good deal of risk, the combination of an earnings beat and the bounce off of long-term support makes the July 16 an interesting gamble.

    On the opposite side of the risk spectrum, a cash-secured put can offer a safer trade with less risk to equity. The September 16 put is bid at 1.40; this requires just a 2% gain in a touch under 3 months to receive our maximum gain of 8.9%, or 36.5% at an annualized rate. The break-even point on this trade is 14.60, a further 7% drop from the stock's already depressed price. At any point below that, we own TSRA at 14.60, or under $5/share net of cash, a solid price for a company projected to earn well over $2/share combined in 2011 and 2012. Between TSRA's solid numbers, its stable of high-tech patents, and the cushion built-in by nearly $500 million in cash and investments, this looks like an attractive trade for the short- and long-term.

    Themes: semiconductors, value stocks Stocks: TSRA
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