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Tessera Technologies (TSRA): Share price forming bullish 'flag'

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Tessera Technologies (NASDAQ: TSRA) is a leading provider of miniaturization technologies for the electronics industry. The firm develops and licenses a range of advanced chip packaging, interconnect, and optics solutions for the consumer, computing, communications, medical and defense electronics markets.

There was good news for Tessera investors late last month, when the U.S. International Trade Commission overturned a stay on a company patent infringement case against Motorola (NYSE: MOT), Qualcomm (NYSE: QCOM) and others. Tessera collects royalties on its chip packaging technologies from such companies as Intel (NASDAQ: INTC) and Sony (NYSE: SNE), but the defendants in this case have refused to pay the same. The case may now proceed, but an out-of-court settlement is possible. Tessera came to such an agreement in 2002, for example, with current customer Texas Instruments (NYSE: TXN). TSRA shares fell sharply in late February, when the stay was originally announced. Once it was lifted, Davenport upgraded the stock to "strong buy" status and declared a $35 price target.

The share price popped on the news and has since been consolidating the gain in a bullish "flag" pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside. Note that the flag has retained its integrity, despite a subsequent preliminary U.S. Patent and Trademark Office ruling rejecting certain company claims in yet another enforcement action.

Altogether, brokers now recommend the stock with four "strong buys", four "buys" and two "holds". Analysts see an 63% growth rate, through the next year. The TSRA PEG ratio (1.02), Price to Book ratio (2.55), Price to Free Cash Flow ratio (14.87), Operating Margin (33.80%), Net Profit Margin (23.07%) and Net Income per Employee ($118.5k) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $11.11 and $46.43. A stop-loss of $18.85 looks good here. Note that the firm is expected to report Q1 results in early May. It has reiterating its revenue guidance for the first and second quarters and that guidance does not include settlements from the company's current enforcement actions.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.

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Last updated: July 11, 2009: 06:34 AM

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