Selling Shutterfly Ahead of Earnings

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 |  About: Shutterfly, Inc. (SFLY)
by: eChristian Investing

Shutterfly (NASDAQ:SFLY) is scheduled to report third quarter 2008 results after the market closes on Tuesday, October 28. Based on our analysis, we at eChristianInvesting are expecting SFLY to report disappointing results that fail to meet Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $32.8 million and EPS of ($.22). This would represent essentially flat revenues from last year’s $32.6 million in the same period. The current analyst consensus calls for revenues of $34.2 million and ($.23) EPS.

On July 30, the company gave 3rd quarter guidance for revenue of $33 – 36 million and EPS of $(.15) – (.30). The third quarter is traditionally difficult for retailers such as Shutterfly, as there are no gift-giving holidays that occur within the quarter. In addition, pricing pressures from the declining economic environment has resulted in SFLY having to offer more promotional pricing deals. Subsequently, we expect that management will lower 4th quarter guidance which will have a significantly negative impact on the share price as the company relies on Q4 for over half their annual revenues and 100% of their net income.

Share Performance

Shutterfly’s shares have been crushed this year - dropping over 74% to date. After posting an impressive 78% return last year, SFLY has under-performed the overall market this year as the Nasdaq is down 42% in the same time period.

Valuation

Despite their falling stock price, Shutterfly’s shares are still trading at 35x consensus 2009 EPS estimates. This is a steep premium to the relative valuations of their peer group (highest in their peer group). This premium valuation combined with the likelihood of reduced guidance numbers will likely keep investors away from this stock.

Recommendation

Sell with a $4-5 price target.

Disclosure: none