Bankrate Shares Sag On Weak Print Biz, But Analysts Still Glowing

| About: Bankrate Inc. (RATE)

Shares of Bankrate (NYSE:RATE), which sells ads online and in newspapers tied to mortgage quotes, and which gets compensated by lenders for lead generation, continue a roughly 12% five-day slump after Thursday announcing sales that were more-or-less in line with analysts estimates at $23.3 million, compared to the Street’s expectations of $23.7 million, and profit of 34 cents a share, a penny ahead of estimates.

The company’s print advertising business was the weak spot, say analysts, and that may be what has investors spooked — that, or the lawsuit announced Thursday by a competitor, BanxCorp, which runs mortgage Web site Banx.com, and which is accusing Bankrate of being an unfair monopolist in the mortgage quote business and of having “predatory practices.”

Well, a chorus of analysts stepped in to defend Bankrate stock Friday:

• A.G. Edwards analyst Denise Garcia upgraded her rating on the stock from Hold to Buy and set a $50 price target. She says that the company is transitioning from the print ad business to the online world and that that will lead to higher profit margins going forward. “Q2:07 [earnings before interest taxes depreciation and amortization or EBITDA] results and an increase in guidance reflect the company’s shifting revenue mix, from lower margin print to higher margin online advertising,” she writes, adding, “We believe this shift is sustainable long-term given annual increases in page views and the pricing structure of graphical advertising formats.” Garcia is particularly heartened by Bankrate’s yesterday raising its forecast for this year’s EBITDA from a range of $36 million to $40 million to a range of $39 million to $43 million, and her estimates for the company’s gross profit are going up: from 74% to 76% this year and 75% to 78% next year. She figures the stock is worth $50 on the basis of a discounted cash-flow model.

• Similarly, ThinkEquity’s Stewart Barry, justifying a $60 price target, seems unperturbed by the slowing of the print business, writing that, “The solid results were driven by robust Online Publishing revenue of $20.2M (up 30.9% year-over-year and up 6.2% quarter-over-quarter, with higher CPMs [cost per thousand impressions] and increased volume driving Graphic Ad revenue of $12.2M (up 30.8% year-over-year and up 14.8% quarter-over-quarter […] What’s more, Barry thinks the company is successfully transitioning away from being dependent on the mortgage and the housing market, by generating leads to customers who are looking for other financial products: during 2Q07, deposits accounted for a greater percent of total Hyperlink revenue versus mortgages—deposits accounted for 46% and mortgages accounted for 40%.” Barry says the stock is a deal trading at an enterprise value-to-EBITDA multiple of 13x his estimate of EBITDA next year given the company should see 29% EBITDA growth next year.

There are plenty of other similar notes this morning unworried by either the lawsuit or the deteriorating print business, but I do want to highlight the spoiler: Canaccord Adams’s Colin Gillis clearly likes the company just as much as his peers, but he writes that he’s removing the company from his “Best Ideas List” because although “Bankrate continues to execute and drive results […] after a +62% increase in share price in the last year. Several of the main catalysts, such as the move to the cost-per-click model, are either behind the company or well-known by investors, and the valuation gap with its peer group has narrowed.”

Despite the warm good feelings, Bankrate shares continue to slide Friday, down 8.4% at 39.1%

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