Dolby Labs Stock Making New Low Ahead of Earnings – What To Expect

Dolby Laboratories, Inc. (NYSE: DLB) is under pressure as it approaches its fiscal year 2025 earnings release,  after market close today. Dolby Labs stock hit a new low at $64.02 leading in, and currently trades 0.31% lower on the day. This recent dip raises concerns among investors, especially given the company's rich history and generally positive analyst sentiment.

Analysts are looking for the company to report an EPS of $0.70, down from the $0.81 from the same period last year. Revenue is expected to be largely flat Y/Y at $305.76million.

The stock's current price reflects a 17.3% decrease since the start of the year, and trading below both its 50-day ($69.24) and 200-day ($74.81) simple moving averages, the technical indicators point towards a bearish trend. 

Despite the recent price slump, Dolby's fundamentals appear relatively solid. The company boasts a price-to-earnings (P/E) ratio of 23.83 and a high gross profit margin of 88.52%. Moreover, Dolby has a track record of increasing its dividend for the past 11 years, currently offering a yield of 2.01%. This consistent dividend growth could provide some reassurance to long-term investors.

Dolby has been actively pursuing strategic initiatives to bolster its growth. A key development was the acquisition of GE Licensing from GE Aerospace for $429 million in cash, expected to close by the end of fiscal year 2024. This acquisition brings over 5,000 patents, particularly in video codec technologies like HEVC and VVC, aiming to strengthen Dolby's licensing business and enhance operating margins and earnings per share in fiscal 2025. This move signals Dolby's commitment to innovation and market leadership.

The company's third-quarter fiscal 2025 results, reported on July 31, showed positive momentum. Total revenue increased to $316 million from $289 million in the same quarter the previous year. GAAP net income was $46 million ($0.48 per diluted share), while non-GAAP net income reached $76 million ($0.78 per diluted share). Dolby has also seen expansion of Dolby Atmos in Audi vehicles and increased adoption across major sporting events and streaming platforms.

Furthermore, the introduction of Dolby Vision 2, featuring an upgraded image engine and AI-driven content optimization, is expected to drive future growth. Hisense is the first manufacturer to implement this technology, indicating strong industry support.

Analyst Sentiment and Expectations

Despite the stock's recent struggles, analysts remain largely optimistic about Dolby's prospects. The consensus rating is “Strong Buy,” with an average price target of $97.67, implying a potential upside of approximately 48.4% from the current price. This bullish outlook suggests that analysts believe the company's strategic initiatives and technological advancements will eventually translate into significant stock appreciation.

The stock's recent decline and the looming earnings release create a scenario ripe with both opportunity and risk. A strong earnings report and positive guidance could quickly reverse the current bearish trend, while disappointing results could further exacerbate the stock's decline.