Shares of semiconductor and materials licensing company Xperi Holding Corp. (XPER, Financial) gained more than 24% on Tuesday following the announcement of its third-quarter results on Monday evening.
The company beat analysts' expectations on revenue and earnings, which sparked the rise in share price. Despite Tuesday's gain, shares of Xperi are still down more than 6% this year.
Xperi also announced a major licensing deal with one of its major partners, which could result in sustained top-line growth. The company's wholly-owned subsidiary, TiVo, announced a 15-year licensing deal with Philadelphia-based telecommunications company Comcast Corp. (CMCSA, Financial).
The new agreement will extend the relationship between Xperi and Comcast to 2031. But crucially, this deal also solves all outstanding litigations between the two companies.
Xperi is looking to capitalize on the rapid growth of the media intellectual property licensing market and pay-TV. The company also offers products and services for the connected car and consumer experience markets.
While these segments provide exciting growth prospects, they are also very competitive. The likes of Netflix Inc. (NFLX, Financial) are a force to reckon with in media IP and pay-TV. On the other hand, Sirius XM Holdings Inc. (SIRI, Financial) continues to drive connected entertainment.
As such, while TiVo's deal with Comcast could lead to steady growth in Xperi's top line, it remains to be seen how significant it will be.
Highlights from recent quarterly results
For the third quarter, Xperi posted adjusted earnings of 19 cents per share, which beat analysts' expectations of 12 cents. This was a significant decline from the adjusted earnings of 56 cents reported in the same period a year ago.
The company's top line more than doubled from the prior-year quarter to $202.8 million.
The San Jose, California-based company also posted $62.2 million in cash from operations while adjusted free cash flow stood at $66.4 million after buying back $35 million worth of its common stock.
Valuation
From a valuation perspective, shares of Xperi are currently trading at a forward 12-month price-earnings ratio of 6.94, which is significantly lower than Rambus Inc.'s (RMBS, Financial) equivalent of 22.62.
With the company still making huge GAAP net losses, however, investors may want to take a closer look before investing. Xperi's total debt of over $1 billion compared to total cash of about $203 million also highlights a potential weakness in the company's financial position.
In summary, shares of Xperi appear to be competitively valued when compared to Rambus. However, the company also appears to be vulnerable in regard to the balance sheet with huge debt compared to the total cash. The debt-to-equity ratio of 83.18 also highlights the level of control creditors have on the company.
Disclosure: No positions in the stocks mentioned.
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