Skip to main content

Shares of



were on fire Tuesday after an analyst initiated coverage on the digital video recording company with a strong buy rating and a price target nearly triple its closing price on Monday.

The market's perception of TiVo has been shaped by the company's persistent losses, says Richard Baldry, an analyst with First Albany Capital, in a research report. But that perception is likely to change as TiVo starts posting profits later this fiscal year, says Baldry, who is long shares of TiVo, but whose firm has not done recent investment banking business for the company.

Indeed, if TiVo is compared with other, similar software companies, it is trading at a significant discount on a price-to-sales basis, he says.

TiVo's "valuation

is disconnected from

its underlying economic engine," Baldry says. "We view our target price of $16 ... as reasonable, although it is clearly disconnected from the stock's current trading level."

But TiVo's shares seemed to be tied into Baldry's report on Tuesday, rising recently by $1.13, or 20.2%, to $6.73.

TiVo's losses soared last year as the company used rebates on recording hardware to grow its subscriber base. The company has promised to focus more on its bottom line this year. But some analysts have questioned whether the company can continue to grow its subscriber base and revenue at a rapid clip without resorting to red ink-swelling rebates.

The company has also faced skepticism about how well it can compete with rival DVR systems. Many satellite and cable television companies now offer DVR systems similar to TiVo's at a lower subscription price than TiVo charges. And, instead of selling DVR boxes for a hundred dollars or more, which is what TiVo's partners typically do, the cable and satellite companies typically let subscribers use their DVR machines for free or for a low monthly fee.

But TiVo did get a boost earlier this year, when it signed a deal with cable giant



. As part of the deal, Comcast will offer TiVo's recording service to its customers.

TiVo will likely follow that deal with other cable providers, Baldry said. And the deal could encourage



to remain a partner of TiVo. Though a longtime partner of TiVo's, DirecTV has recently begun to offer a competing DVR service to its customers.