Neustar Inc. Adds Value With Targus Acquisition

| About: NeuStar, Inc. (NSR)

Unless you follow Communications Services stocks, you might not know too much about Neustar Inc. (NYSE:NSR). Whether you know it or not, you interact with the company everytime you make a call or send a text message. Neustar "...routes every phone call and text message in North America" and "also directs about 12% of global Internet queries." Neustar was a subsidary of Lockheed Martin (NYSE:LMT) until 1999 when it was spun-off to avoid a conflict of interest with a company Lockheed was acquiring, Comsat.

Recently, Neustar announced it is set to acquire Targus Information Corp. for around $650 million, a deal Neustar's CEO says will diversify the company's service portfolio. News of the acquisition sparked a 7.5% rally in the company's shares Wednesday. Targus Information Corp. is a leading provider of caller identification services.

Despite the run-up, the stock still trades at just 13.57 times analysts' estimates of 2012 earnings. The consensus estimate for 2012 is $2.01 per share and the company expects the Targus acquisition to add around $.20 to that figure--dividing the current share price of $30.10 by $2.21 yields a forward price-to-earnings ratio of 13.57. The company has no debt and has more cash on its balance sheet now than at any other time dating back to at least 2001.

The company has a reputation for solid, dependable revenue growth which is expected to continue into the future. It is expected to generate around $596 million in revenue in 2011 and $660 million in 2012 not counting the acquisition of Targus. Combined, the companies should bring in around $750 million annually according to a press release posted on Neustar's website. This constitutes a 25% jump in revenue from 2010 to 2012.

S&P expects the company's operating expenses to decrease and demand for Neustar's products to increase in 2011. A look at some key ratios reveals the company's return on equity has averaged 19% over the last five years and its net margins have averaged 17.18% over a similar time frame. Of the eight analysts who cover the company, 3 rate the company a 'buy' and 8 have it at 'hold'. A common-sense breakdown of how the company operates can be found here.

Although I would wait on a dip of 3-5% before establishing a position in the stock, ithe company seems like a solid bet on the continued growth of the communications industry. Neustar is a good earner and a look at a five year price chart reveals that the company's shares weathered the financial crisis remarkably well. Look to buy the shares on weakness with the aim of establishing a long-term position in the company.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NSR over the next 72 hours.