Acacia Research Corporation
(ACTG) develops, acquires, and licenses patented technologies. It
assists patent owners with the prosecution and development of their
patent portfolios, protection of their patented inventions from
unauthorized use, generation of licensing revenue from users of
their patented technologies and enforcement against unauthorized
users of their patented technologies.
The company seemed over the past few years to be building an
impressive portfolio of patents to license. In fact, I traded the
stock in 2012 after I saw George Soros was a shareholder. But
underneath the surface is an unpredictable revenue stream built on
lawsuits and it's no wonder the company doesn't give guidance.
Long Slide From $45 to $15 in 2 Years
Since a quarterly revenue peak of $99 million in early 2012, the
company and the stock have been sliding. And dozens of weeks in the
past two years where the stock was either a Zacks #4 Rank (Sell) or
#5 Rank (Strong Sell) have kept our followers out of the name.
One of the risks with small caps in the Zacks universe is that the
analyst coverage can be low, sometimes with only one covering
analyst providing estimates, as was the case with Acacia.
Obviously, the more analysts, the better idea you have of how
reliable the estimates could be and where in the dispersion you
want to put your confidence.
But in the case of ACTG, anyone holding the stock got the heads-up
right away from this lonely analyst who lowered his Q3 EPS estimate
from 40-cents to 7-cents on October 14. The next day, the Zacks
Rank from ACTG dropped from #3 (Hold) to #5 (Strong Sell) because
of the magnitude of this downward revision.
Full year 2013 EPS was also taken down to $0.33 from $1.11 and 2014
down to $1.16 from $1.77.
Two days later when the company reported on October 17, any
investor or trader who was paying attention to one of the most
important earnings estimate revisions of all -- the ones that come
days before a quarterly report -- was able to dodge this bullet
when the company reported an unexpected loss of 8-cents...
I read a few research reports since this let down and it seems the
analysts are generally forgiving of and apologetic for Acacia,
citing that "quarterly fluctuations" need to be smoothed out over
12-month periods. Three analysts maintain price targets between $25
It's not hard to understand why all the analysts don't provide
estimates for this unpredictable business. But while they remain
positive on Acacia shares at these levels, I'd only take them at
their word if we see those annual estimates head back up.
And the Zacks Rank will be your heads-up.
Kevin Cook is a Senior Stock Strategist for Zacks where he runs
Follow The Money
ACACIA RESEARCH (ACTG): Free Stock Analysis
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