Dolby Laboratories (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 1000 patents and 870 trademarks worldwide. In film, the Dolby Digital format has become an audio standard, being employed in more than 42,000 movie theaters. American engineer and physicist Ray Dolby founded the firm in London in 1965 and moved it to San Francisco in 1977. Sony (NYSE: SNE) is a major competitor.
The company surprised the Street late last month, when it reported fiscal Q1 EPS of 42 cents and revenues of $150.2 million. Analysts had been looking for 32 cents and $134.4 million. Management also guided FY08 EPS to $1.34-$1.44 ($1.37 consensus) and FY08 revenues to $575-$615 million ($588.94M consensus).
DLB shares
popped on the news and have since been cycling in 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". The DLB Sales Growth rate (43.87%), EPS Growth rate (55.56%), Operating Margin (40.74%), Net Profit Margin (30.69%), Return on Assets (16.86%), Return on Investment (20.13%), Return on Equity (21.23%) and Net Income per Employee ($165.99k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 42% of the outstanding shares. Over the past 52 weeks, DLB has traded between $30.08 and $53.63. A stop-loss of $39.90 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in either of the stocks mentioned above.
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