Bear of the Day: CoStar Group (CSGP) - Bear of the Day


CoStar Group, Inc. ( CSGP ) has seen consensus estimates fall meaningfully lower for both 2013 and 2014 following a rare earnings miss on February 27. It is a Zacks Rank #5 (Strong Sell).

Despite the negative earnings momentum, shares still trade at a premium on a forward price to earnings and price to cash flow basis. This doesn't bode well for shares over the next several weeks.

CoStar Group provides information, analytics and marketing services for the commercial real estate market.

Q4 Miss, Falling Estimates

CoStar reported fourth quarter results on February 27. Adjusted earnings per share came in at 33 cents, missing the Zacks Consensus Estimate by 2 cents. Revenue rose 51% to $100.1 million, but this was driven in large part by an acquisition.

Following the Q4 earnings miss, analysts revised their estimates meaningfully lower for both 2013 and 2014. This sent the stock to a Zacks Rank #5 (Strong Sell). The 2013 Zacks Consensus Estimate is now $1.71, down from $1.80 thirty days ago. And the 2014 consensus is now $2.28, down from $2.57. You can see this sharp decline in the company's 'Price & Consensus' chart:

Premium Valuation

Despite the negative earnings momentum, shares of CoStar still trade at a frothy 56x 12-month forward earnings, which is a significant premium to the industry median of 17x. Its price to cash flow ratio of 63 is also above its the peer group median of 13.

CoStar Group also carries a long-term 'Underperform' Zacks Recommendation.

The Bottom Line

With negative earnings momentum and premium valuation, investors may want to consider avoiding CoStar Group for now. However, there are other stocks within the IT Services industry that investors might want to check out. Unisys Corporation ( UIS ), for instance, carries a Zacks Rank of 1 (Strong Buy), and Infosys Ltd. ( INFY ) has a Zacks Rank of 2 (Buy).

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service .

COSTAR GRP INC (CSGP): Free Stock Analysis Report

INFOSYS LTD (INFY): Free Stock Analysis Report

UNISYS (UIS): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: CSGP , INFY , UIS

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