How Will TiVo (TIVO) Stock React to Convertible Senior Notes Sale?

NEW YORK (TheStreet) -- Shares of TiVo  (TIVO) were flat in morning trading Wednesday after the company announced the pricing of a private offering of $200 million of 2% convertible senior notes due 2021.

The offering contains a 30-day option for initial purchasers to buy up to an additional $30 million to cover any over-allotments. The company expects the offering to close on September 22.

The initial conversion price will be approximately $17.82 a share, which represents a conversion premium of approximately 30% to TiVo's closing price of $13.71 on Tuesday. The company will use most of the proceeds from the offering to fund share repurchases, which include approximately $42 million in concurrent share repurchases, and to offset most of the potential dilution of existing convertible debt. 

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These repurchases are separate from TiVo's previously announced $350 million share buyback program.

Separately, TheStreet Ratings team rates TIVO INC as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate TIVO INC (TIVO) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.9%. Since the same quarter one year prior, revenues rose by 11.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for TIVO INC is rather high; currently it is at 65.66%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, TIVO's net profit margin of 8.32% significantly trails the industry average.
  • Despite currently having a low debt-to-equity ratio of 0.35, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.49 is very high and demonstrates very strong liquidity.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • TIVO INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, TIVO INC turned its bottom line around by earning $1.98 versus -$0.09 in the prior year. For the next year, the market is expecting a contraction of 86.4% in earnings ($0.27 versus $1.98).
  • You can view the full analysis from the report here: TIVO Ratings Report

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