The art of effectively processing the digital signals used by consumer electronic devices is constantly evolving, and the most successful makers of the chips that rule the process are those who define the evolutionary path. An industry leader in that regard is headquartered in Sunnyvale, California, and works from offices around the world.

Zoran Corporation (NASDAQ: ZRAN) makes specialized integrated circuits and software for digital video and audio compression applications. Its devices are used in DVD players and recorders, digital cameras, multimedia mobile phones, audio speakers and receivers, digital televisions, set-top boxes, and digital printers. Zoran also licenses its intellectual property solutions to other semiconductor manufacturers. The company's customer list includes such names as Hewlett-Packard (NYSE: HPQ), SanDisk (NASDAQ: SNDK) and Sony (NYSE: SNE).

Investors were pleased earlier in the week, when the firm reported Q3 EPS of 51 cents and revenues of $146.4 million. Analysts had been looking for 39 cents and $138.4 million. Management also guided Q4 EPS to 30-34 cents (30 cent consensus) and Q4 revenues to $128-$132 million ($128.14M consensus). CIBC World Markets, Needham, Wedbush Morgan and Deutsche Securities subsequently declared the issue a "buy" and established price targets in the $27-$30 range. The share price popped on the news and then moved into a bullish flag consolidation pattern. Stocks frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with two "strong buys," ten "buys," five "holds" and one "sell." Analysts expect an 18% average annual growth rate through the next five years. The ZRAN Price to Sales ratio (2.61), Price to Book ratio (2.05) and EPS Growth rate (601.70%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, ZRAN has traded between $13.45 and $25.07. A stop-loss of $21.45 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.