Needham & Co. analyst Mark May Friday upgraded shares of one-time search engine giant InfoSpace (INSP) from Hold to Buy on the expectation the company will pay out a $400 million dividend sometime before the year is out. The company is expected to sell its mobile content business and its online directory for $360 million, he anticipates.
May argues the stock is worth an enterprise value that’s six times the company’s EBITDA, or $23 by year-end 2008. The stock was closer to his target Friday, rising 2.4% to $19.27.
The key is that InfoSpace has tons of net operating loss carry-forwards, meaning it pays no taxes on the sale of the two businesses, writes May. May estimates the special dividend based on the proceeds plus cash on the balance sheet now, $217 million, in addition to free-cash-flow generation from now till the close of the sale. The dividend would add up to about $12 per share, writes May. And the remaining online search engine business? Well, it’s a “cash cow” says May, making it worth taking a bet on InfoSpace for the dividend.