Analyst Bullish on Focus Media (FMCN)

Piper Jaffray's Safa Rashtchy released a note on Focus Media (ticker: FMCN) earlier today. Key extracts:

Updating Estimates to Reflect Closing of Dotad Acquisition. We are updating our model to reflect the Dotad acquisition which closed on March 21, 2006. As such, we are now including $12.4M of Dotad revenue in our 2006 estimate and $20.2M in revenue in our 2007 estimate. The acquisition adds an incremental $0.08 to our 2006 GAAP EPS estimate and $0.14 to our 2007 GAAP EPS estimate.

Updating In-Store Network Estimates. We are also updating our estimates for the In-Store segment as we believe the network is growing faster than our previous assumptions, generating much higher revenues. For 2006, we are increasing our In-Store network revenues from $16.8M to $22.6M. For 2007, we are raising our In-Store segment estimate from $29.5M to $38.5M. This increase to our revenue estimates generates an incremental $0.04 and $0.06 in GAAP EPS in 2006 and 2007, respectively.

Estimate Changes. As a result of the Dotad acquisition and the upward revision of our In-Store segment revenue assumption, we are increasing our 2006 revenue and GAAP EPS estimates from $165.2M and $1.05 to $183.5M and $1.17. For 2007, we are increasing our revenue and GAAP EPS estimates from $232.4M and $1.51 to $261.6M and $1.71.

Price Target and Valuation. We are increasing our price target from $63 to $71, maintaining our previous multiple of 40x '07 PF EPS. The 40x multiple remains less than the Focus Media's '07 PF EPS growth rate of 43%, and we believe our estimates remain conservative. We believe a 40x multiple is warranted given Focus Media's growth rate and its insulation from the volatility inherent in most Chinese Internet and wireless companies. The relative stability of Focus Media and its insulation from regulatory and competitive volatility, we believe, will command a high premium from investors compared to other Chinese names. We also note that U.S. comparable companies with similar growth rates trade at 40x-50x multiples.

RECOMMENDATION: We maintain our Outperform rating and are increasing our price target from $63 to $71 (40x 2007E PF EPS).