DTS Channel Checks Surprisingly Positive

Deutsche Bank [DB] is out with a positive call on DTS Inc. (DTSI) saying that following 350 retail store checks yesterday, they are optimistic Blu-ray can have a near-term positive impact on DTS in 1H08 as pent-up demand appears to have accelerated Blu-ray player sales over the last two weeks. The firm reiterates their Buy rating as DTS' surround sound technology is mandatory on all Blu-ray players, suggesting an addressable market of $150m+ in revenue (vs. $50m today) and peak EPS of $2.00-$4.00 per share.

DB notes they were surprised to discover that 43% of Blu-ray players in stores are sold out. There has been an increase in demand over the last two weeks. This suggests that DTS is likely to experience the inflection point in the Blu-ray cycle earlier than the firm thought, possibly 2Q08. This faster adoption could drive an additional $0.05-$0.10 EPS to their $0.73 pro forma EPS forecast for 2008.

DTS' strong secular drivers create a stock with the potential to double over the next several years as the Blu-ray cycle develops. DB's $30 target is based on their DCF and embeds 3% terminal growth and a 15% WACC. Over the long-term, they believe a $40+ stock is possible based on peak earnings of $4.00 per share.

Notablecalls: I think this DB call is enough to create nice buy interest in the stock today.