Buying Sohu.com Ahead of Earnings

Sohu.com (SOHU) is scheduled to report third quarter 2008 results before the market opens on Monday, October 27. Based on our analysis, we at eChristianInvesting are expecting SOHU to report better than expected results that beat Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $116.3 million and EPS of $1.02. This would represent a 126% increase in revenues from last year’s $51.5 million in the same period. The current analyst consensus calls for revenues of $114.7 million and $.95 EPS. On July 28, the company gave 3^rd quarter guidance for revenue of $112 – 116 million and EPS of $1.00 - $1.05.

Investors have taken an ultra-conservative view on China recently. We believe that is unwarranted as the Chinese government will continue its recent efforts to stimulate the economy. Chinese internet stocks in particular stand to benefit from the online migration of the world’s largest population.

Share Performance

To date, Sohu’s shares are down only 10%. Until the last few weeks, the company had actually posted an impressive gain for the year. It has certainly exceeded the performance of its peers (which have fallen over 30%), as well as the Nasdaq which has dropped 40% this year.

Valuation

Shares are now trading at only 11x consensus 2009 EPS estimates. This is above the relative valuations of their peer group. While this is a slight premium to its peer group, we believe that overall valuations of Chinese stocks will rise in the coming months as investors refocus on fundamental valuations.

Recommendation: Buy with a $60 price target.

Disclosure: none