DTS Stock Soars on Good Analyst Rating22 Aug, 2003 By: Holly J. Wagner
Digital Theater Systems Inc. (DTS) is on the fast track since its July 10 initial public offering, with plans to expand DVD-Audio production in a partnership with EMI and an analyst's rating of “outperform” based on the marketplace bonanza that is DVD.
Chicago-based investment banking firm William Blair & Co., which managed the DTS IPO, initiated research coverage of DTS Aug. 20 with an outperform rating, pushing the stock that debuted at $17 a share up 8.27 percent -- nearly $2 -- from its opening price that day of $22 per share, to $23.82 per share. Blair & Co. disclosed its ownership of more than 1 percent of DTS stock and a financial adviser relationship for which Blair receives money from DTS.
The rating was based on Blair analyst David Farina's estimates that DTS, which was founded in 1990 and received key investments from Steven Spielberg and Universal Studios in 1993, would offer investors an opportunity to get in on the DVD boom.
“DTS, which operates in a market with high barriers to entry, has strong growth prospects and a predictable, highly profitable licensing business model,” Farina said. “We believe DTS is at the epicenter of the conversion to digital audio/entertainment, because its technology addresses just about every audio entertainment experience, including consumer electronics, movies, DVDs, video games and cars.
“We believe DTS' near-term growth prospects are compelling given the growth in the DVD and consumer markets, and the company is developing new products to continue its growth trajectory,” he said. “DTS is the only pure-play audio entertainment company, and it provides investors a way to participate in the fast-growing DVD market.”
DTS develops and licenses digital 5.1 multichannel audio surround-sound technology for the motion picture, consumer electronics and professional audio markets.
The company is positioned for aggressive growth based on its profile, and Farina estimates it will earn 57 cents per share in 2003 and 73 cents per share in 2004.
DTS wasted no time pursuing that growth, immediately announcing a partnership with EMI to launch the “DTS Signature Series” of DVD-Audio products, which will comprise new surround-sound versions of music recordings from various EMI labels.
“EMI Music -- one of the most established and respected music companies in the world -- has joined together with DTS, which has been instrumental in promoting the surround music experience, to create an incredible new music catalog,” said DTS VP Jeff Skillen. “This agreement is another example of how the recording industry is recognizing the importance of surround music for the future growth of the industry.”
Each disc the DTS Entertainment production team creates under the partnership will carry a new logo and will contain exclusive surround remixes plus a variety of bonus features. This “Signature Series” will represent some of the top artists from EMI.
“We are excited to work with DTS to develop and evolve this new format,” said Ted Cohen, SVP, EMI Digital Distribution and Development. “Working in DVD-Audio allows us to release music in superior sound quality for the growing number of home theater and car audio aficionados, while offering a higher level of security.”