Thursday, October 21, 2010

Acacia Research ( ACTG - Nasdaq ) Follow-up Report

Acacia Research (ACTG $21.60) reported Q3 results that were above our expectation.  The company signed a structured deal with Microsoft during the period, licensing its entire patent portfolio to the software maker for a three year period.  We thought the proceeds probably would be similar to the $25 million paid by Oracle in Q1.  It appears the amount was greater.  Total revenues nearly quadrupled to $63.9 million to produce fully taxed (35% rate) earnings of $.55 a share. 

Last year Acacia lost $.03 a share in the September period.  The company continued ramping up its patent intake during the quarter.  As that intellectual property is licensed out revenues promise to keep building in upcoming periods.  Acacia indicated it does not expect to sign another structured transaction in the December quarter.  We estimate the company will essentially break even in the period, keeping full year income at $.90-$.95 a share.  That's up from our previous $.75 a share estimate.  Next year $1.15-$1.35 a share remains a realistic target.  Actual profits will be higher since the company still holds enough tax loss carryforwards to shield income through the end of 2011.  (We use fully taxed figures for comparability purposes, figuring successful companies will burn through their tax benefits eventually.)

(Click on table to enlarge)




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