Shares of Rovi are lower by 2.93% to $13.59 in early afternoon trading on Friday.
The firm lowered its rating after Rovi lost a patent infringement case with Netflix (NFLX). A judge ruled that five of Rovi's patents are invalid.
The graphics software designer faces uncertainty as its number of patents are decreasing, Pacific Crest said in an analysts note.
Rovi's loss in court creates difficulties for all software patents, but the company still has a future if it renews contracts with multichannel video programming distributors.
Multichannel video programming distributors may face the same struggles in court, but those patents are less abstract than software patents, according to analysts.
Additionally, Rovi will release its 2015 second quarter earnings report on July 30 after the market close.
Separately, TheStreet Ratings team rates ROVI CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate ROVI CORP (ROVI) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself, generally high debt management risk and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market, ROVI CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $26.07 million or 58.41% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 30.21%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1000.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- The debt-to-equity ratio of 1.03 is relatively high when compared with the industry average, suggesting a need for better debt level management. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 3.48, which shows the ability to cover short-term cash needs.
- ROVI CORP 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. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ROVI CORP swung to a loss, reporting -$0.14 versus $0.21 in the prior year. This year, the market expects an improvement in earnings ($1.72 versus -$0.14).
- You can view the full analysis from the report here: ROVI Ratings Report