Tuesday, June 27, 2006

Calls of Note Part 4

- JP Morgan is updating their Yahoo! (NASDAQ:YHOO) estimates for 2Q'06 and F'06 due to: 1) strength in the broader search market, 2) stabilized US market share, and 3) improved monetization. Firm's revised 2Q estimates of $1.140B and $0.12 (up from $1.117B and $0.11) are now slightly ahead of the consensus estimates of $1.138B and $0.11.

Recent conversations with search media buyers, including SEM executives at firm's June 16th conference call, coupled with 3rd party data suggests that Yahoo! may have grown its queries more rapidly than had originally anticipated. Additionally, it appears Yahoo! grew its US queries in-line with the market in 2Q.

Checks also suggest that Yahoo!'s monetization is up 1% to 2% compared to the first quarter. Finally, we believe Yahoo! continues to see strong momentum in graphical advertising.

Notablecalls: Expect to see some interest in YHOO following the call.

- Thomas Weisel Partners comments on NutriSystem (NASDAQ:NTRI) noting the co is expected to report 2Q06 results the week of July 24, 2006. Firm remains comfortable with their above consensus 2Q06 estimates for revenue of $121.8mn and EPS of $0.48 (consensus of $123.5mn and $0.46, guidance of $118-122mn and $0.44-0.46). These estimates assume 156K new customers, a conservative 1.3% decline in CAC (versus an 8.3% decline in 1Q06), and an approximate 160bp y/y decline in G&A expense as a percent of revenue. They believe new customer assumptions may prove conservative and see gross margin as a potential source of incremental leverage.

Firm's five-year DCF analysis supports the current valuation, yielding a current fair value of $75.04, while comparable multiples relative to peers suggest a current fair value of $98.81. Taking the straight average of the two valuation methodologies, they arrive at a current fair value of $86.93.

Notablecalls: Looks like an actionable call!

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