Earnings Preview: Expecting Stamps.com to Disappoint

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 |  About: Stamps.com Inc. (STMP)
by: eChristian Investing

Stamps.com is scheduled to report third quarter 2008 results after the market closes on Thursday, October 23. Based on our analysis, we at eChristianInvesting are expecting STMP to report disappointing results that miss Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $20.5 million and EPS of $.13. This would represent a 1% increase in revenues from last year’s $20.3 million in the same period. The current analyst consensus calls for revenues of $21.1 million and $.14 EPS. On July 23, the company gave full year guidance for revenue of $80 - 90 million and EPS of $0.55 – 0.65. Management indicated that they were beginning to see some weakness in their business due to macroeconomic conditions on their 2nd quarter earnings call.

Based upon the economic developments of 3rd quarter, we believe that this weakness will be magnified in the upcoming quarterly results. In addition, our checks show a summer slowdown in traffic during July and August which could also weigh on the top line numbers.

Share Performance

To date, Stamps.com shares are down only 12%. They have consistently been one of the better performing stocks this year, having easily outperformed the S&P 500’s dismal 35% loss (YTD).

Valuation

Shares are now trading at a reasonable 16x consensus 2009 EPS estimates. This is below the relative valuations of their peer group. While STMP’s reasonable valuation (along with over $4 per share in cash) makes it appear attractive, we believe that the potential for disappointing quarterly results along with the expected reduction in full year guidance makes it risky to buy this stock right now.

Recommendation

Hold with a $9-10 price target.

Disclosure: none