Friedman Billings Ramsey comments on Tessera (NASDAQ:TSRA) after the Administrative Law Judge (ALJ) in the wireless ITC case determined that TSRA's asserted patents are valid but not infringed by the respondents (ATI, Freescale, Motorola, Qualcom, Spansion, ST Micro).

FBR notes this is the same judge who (in February 2008) granted the same respondents a stay of motion, which was actually overruled by the ITC Commission 29 days later upon appeal by TSRA. To that end, it appears "on the surface" that TSRA could, once again, appeal to the ITC Commission with the goal of an overruling, especially considering the ITC staff commentaries that have been in favor of TSRA.

With all the uncertainties associated with the legal front, and lower EPS estimates in CY09, the key question is "What is the true value of the stock?"

Firm calculates a sum of the parts of $18.00: $7.00/share for the core semi business, $5.00/share for the non-semi mix—combined with the current net cash/share of $6.00, this results in their $18.00/share valuation.

Stock net: despite disappointing news from the wireless ITC case, we believe that TSRA's intrinsic value of $18.00/share bakes in a worst-case scenario, with no settlement in any of the legal fronts and not much incremental revenues from the new non-semi segments realized. The stock, below $10.00 (where it traded after hours), is undervalued, in their opinion, and offers "event-driven" investors an attractive entry point.

Notablecalls: I suspect TSRA will trade over the $10 level today. ITC Commission has been very pro-Tessera and with current $9 levels representing pretty much the worst case scenario, risk/reward looks to be in place for a solid upside bet.