VistaPrint Earns Upgrade from Citigroup

| About: Cimpress N.V. (CMPR)

VistaPrint (VPRT) reported stronger than expected earnings results and provided next quarter guidance above the Street, leading analyst Mark Mahaney of Citigroup to upgrade the shares to Buy mainly due to gross margin expansion. The shares are trading up 35% based on massive short covering.

I like this company and wished I got in when it traded down to $11. I was waiting for a pull back that never materialized. See prior write-up. I will need to do more work before I jump in here after the fact but will see what I uncover.

From Citigroup Mark Mahaney:

• Beat Beat & In-Lineish Dec. Qtr. - Q2 FY09 results were way above estimates - Revenue of $139MM and Non-GAAP EPS of $0.53 vs. CIR/Street estimates of $128MM and $0.39, respectively. VPRT left H2 FY09 guidance mostly unchanged, although March Qtr guidance is a nudge above the Street. We believe this was appropriate conservatism.

• Fundamental Inflection Point In Gross Margin - Revenue growth decelerated to 32% Y/Y vs. 44% in Sept. Qtr, but International & Consumer & Holiday Products segments (calendars/greeting cards/etc...) generated big upside. KEY POINT - GM increased 140 bps Y/Y to reach a 6-quarter high of 63.6%. Sustainable drivers were: scale, mix shift to Consumer & Holiday products, and workflow improvements. These offset the decline of high-margin Referral Fees.

• Increasing Estimates & PT - FY09 Non-GAAP EPS from $1.44 to $1.58. PT from $19.50 to $28 - 9X C2010E EBITDA of $158MM.

• Upgrading To Buy Even With 25% After-Market Surge - VPRT closed at $16.22, and the stock traded just over $20 in the aftermarket. Fully respectful of those who called this stock lower, we are upgrading now because: 1) We believe VPRT has achieved Gross Margin stabilization (or better), and this was the key upgrade factor laid out in our 12/21 Initiation report; 2) @ $20, VPRT still only trades at 6X C2009E EBITDA, despite a 20%+ C09 growth outlook that we believe deserves a premium; 3) @ $20 VPRT is still 27% off a level where the company was buying back stock in September; & 4) We believe the market will pay a premium for unusual growth (20%+) in this severe recession.