When you go to the movies and see that the show you have picked features "Dolby" sound, you know you are in for a treat. Some may think that "Dolby" is a technical term, but it is actually the name of the American physicist who invented the high quality audio technology that has enhanced the entertainment experience for four decades now.
Dolby Laboratories Inc. (NYSE: DLB) is engaged in the development and delivery of sound processing and noise reduction systems for the entertainment industry. The firm makes its own products and licenses its technology to other manufacturers. It has about 950 patents and 850 trademarks worldwide. In film, the Dolby Digital format has become an audio standard, being employed in more than 42,000 movie theaters. Physicist Ray Dolby founded the firm in London in 1965 and moved it to San Francisco in 1977. Sony (NYSE: SNE) is a competitor.
The company surprised the Street earlier in the month, when it reported Q4 EPS of 39 cents and revenues of $129 million.
Analysts had been looking for 24 cents and $121.3 million. Management also guided FY08 EPS to $1.27-$1.37 ($1.22 consensus) and FY08 revenues to $560-$600 million ($536.04M consensus). Kaufman Brothers and Ferris Baker Watts subsequently declared the stock a "buy". DLB shares popped on the news and have since settled into a bullish "flag" consolidation pattern. Prices 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 five "strong buys," five "buys" and five "holds." Analysts see a 20% growth rate, through the next year. The DLB Sales Growth rate (26.26%), EPS Growth rate (95.00%), Operating Margin (38.78%), Net Profit Margin (29.93%), Return on Assets (16.67%), Return on Investment (19.86%) and Return on Equity (20.53%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 43% of the outstanding shares. Over the past 52 weeks, DLB has traded between $27.05 and $50.14. A stop-loss of $40.90 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
