Bankrate: Is this a Good Entry Point?

| About: Bankrate Inc. (RATE)

I’ve been waiting for an entry point on Bankrate (NYSE:RATE) in the $20-$22 range (read previous write-up) and that opportunity presented itself last week due to cautious comments from management at an investor conference, coupled with overall market turmoil.

At that conference, management stated that the deposit and insurance businesses are performing well but the mortgage and credit businesses continue to face headwinds. Consumer demand is strong for mortgage refis but advertiser demand remains low because of the overwhelming number of leads received by the mortgage finance companies. With time I think this resolves itself and RATE will start to benefit from refi advertising dollars.

The credit card business, on the other hand, will likely remain subdued due to tighter credit standards. This situation will not change anytime soon because I believe the U.S. is going through a material change in living standards (see my Economic Reset graph) and credit availability is unlikely to rebound to levels that we have been accustomed to.

The shares are currently trading at 6x ’09 EBITDA and at these levels I believe RATE’s risks are properly reflected in the share price, hence, why I am buying now. My DCF points to a $28-$33 value in 12 months, thus I am looking at a ~30% potential return, provided that the economy does not slip into a depression - though some are arguing we are already there.

I do not see any near-term catalysts to point to but at these levels management has to consider repurchasing shares. They appeared confident on the 4Q08 earnings call that they can grow EBITDA in the double digits in 09 but ultimately I think they should look to sell the company. I am certain that M&A directors at several of the large media companies, large cap Internet companies, and possibly even “Microsoft” are looking at RATE at these levels.