BUY OR SELL-Will DTS shares sustain their recent rally?

(For more Reuters Buy or Sells click [BUYSELL/])

By Deepti Govind

BANGALORE, April 27 (Reuters) - DTS Inc (DTSI.O) investors have had much to cheer ever since the company signed a deal with Intel Corp (INTC.O) to use its audio playback technology in a range of laptops and netbooks.

Shares of the entertainment technology company, whose technology is mandated in Blu-ray devices, have gained as much as 77 percent since the deal was announced in February.

However, the specifics of the deal, including how much DTS could get in terms of revenue, are still unknown.

Is DTS a good buy or is the optimism surrounding the deal overblown?

DEAL TO DRIVE SHARES

"I think the shares are going to outperform the market," said Barrington Research analyst James Goss, adding that one of the key drivers would be the Intel deal.

"The deal won't have any impact until next year at the earliest, but it has significant ramifications for them."

While Blu-ray provided an immediate upside, the Intel deal will give the company relevance beyond Blu-ray adoption, added Goss, who has an "outperform" rating on the stock.

"Looking beyond the next couple of months, there is potential that there should be upside in the stock," Goss said. He has a price target of $28 on the stock.

Shares of Agoura Hills, California-based DTS were down about 2 percent at $25.65 Monday afternoon on Nasdaq.

NEAR-TERM CHALLENGES

"They have got a lot of headwinds right now, mostly exposure to consumer electronics. It's going to be pretty challenging for them in the near term", said Collins Stewart analyst John Vinh, who has a "sell" rating on the stock.

Vinh said the hype surrounding the Intel deal was driving up the shares, making them overvalued at current levels.

DTS shares trade at a multiple of about 38 times the company's forward earnings, compared with the electronics components sector that trades at a multiple of about 37 times.

"DTS has run off on expectations rather than near-term financial results. The multiples are getting sort of lofty," said analyst Mark Harding of Maxim Group.

Harding said expectation of a marginal contribution to revenue from the deal with upside potential was the best way to look at the Intel deal. (Editing by Himani Sarkar)