After Missing Earnings Estimates, Is VistaPrint Back on Track?

Dec.12.08 | About: Cimpress N.V. (CMPR)

VistaPrint (VPRT) has seen its shares clobbered for missing estimates on prior earnings calls and concerns about the effect of a recession on its key customers – small and home office businesses. The shares dipped towards $11 from $45 earlier in the year but have since rebounded toward $17.

There was also an abrupt change in CFOs, the second since becoming a public company just a few years ago. Jeffries' analyst Youssef Squali thinks the stock has largely discounted much of the risks and maintains his buy rating after the company’s analyst day on Wednesday. He maintains his $30 price target on the stock, which represents a whopping 75% return, and was pleased that the company maintained their guidance.

With upside like that (on any stock), one has to assume that the correction in the stock price was overdone and the upcoming year will likely pose few challenges for the company. Not sure I am in agreement and will wait for another pull back in the stock to get in.

From Jeffries & Company Analyst Youssef Squali:

VistaPrint hosted its annual Analyst Day in NYC yesterday. Contrary
to our prediction (likelihood of them lowering FY09 guidance to the
low-end of the range), they kept it unchanged while reaffirming F2Q
revenue guidance. Our estimates and PT are unchanged.

Key Points
• Management's commentary and reaffirmed FQ02 revenue
guidance attest to the relative resiliency of the business amid
recessionary headwinds. We note, however, that while a surge in
holiday-related orders bode well for F2Q, F3Q growth could still
face headwinds, given the impact of the slumping economy on
small/macro business spending. Management's visibility into that
segment is relatively poor at this point. Having said that, we believe
that at current levels, the stock has discounted much of this risk.

• We are maintaining a Buy on VPRT to reflect a) its appeal as a
lower cost provider, b) its position as the dominant player in a very
fragmented market, c) growing share of wallet and repeat orders, d)
attractive valuation and e) strong BS and FCF.

• We walked away from AD, once again, with a very favorable
impression of management, the strategy and focus, which remains
on driving growth (even amid the current economic downturn) while
protecting the bottom line. In addition to the CEO and CFO, we also
heard from the CMO, the EVP and President of NA and SVP of
Global Partnerships. Here are key highlights:

• In marketing, the focus is on driving growth by expanding the
customer base, increasing share of wallet and geographic
presence. Annual customer spending rose 5.2% Y/Y to $61 in
FY08, while average order value (AOV) decreased 1% Y/Y,
implying a ~4% gain in purchase frequency, likely due to the
broader product set. VPRT recently ramped-up the pace of product
launches (typically 8-10/yr), benefiting from continuous technology
investments. Web hosting is proving successful so far (with 75k+
subs in 9 months), and more products are on the way, which
overtime should help increase AOVs, share of wallet and attract
new customers.

• In terms of partnerships, VPRT continues to win deals, including
recent ones with Amway Europe and Viking Direct (Office Depot's
online biz). The Viking deal in particular provides an important
sales/distribution channel that should help increase VPRT's
penetration in Europe. While positive, these partnerships remain
difficult for us to assess considering the lack of disclosure.

At $16.85, VPRT trades at an EV/EBITDA, EV/FCF and P/E of 5.2x,
17.8x and 10.8x on our CY09 estimates. Our $30 PT is derived using
a five-year DCF. Risks include: 1) deeper economic downturn; 2)
traction with new products; and 3) increases in mktg costs.