CoStar Group - Aggressive Growth

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CoStar Group Inc. ( CSGP ) has delivered positive earnings surprises for several quarters and recently completed the LoopNet acquisition, and now earnings are expected to grow more than 35% for both 2012 and 2013.

This leading commercial real estate information company became a Zacks #1 Rank (Strong Buy) stock on May 17, 2012 as earnings estimates have moved higher due to enthusiasm over commercial property pricing and improved sales.

What Makes it Attractive?

In the past ten quarters, CoStar beat eight times and matched twice. It has also surpassed by triple-digit percentages in two of the last four quarters.

After more than a year from the merger announcement in April 2011, Costar finally completed the acquisition of LoopNet (leading marketing commercial real estate) on April 30. The acquisition is a strategic fit based on its massive cross-selling opportunities, new product development and penetration into new markets. The transaction also provides both revenue and cost synergies for the combined entity.

On April 25, the company reported a first-quarter 2012 profit of 25 cents, surpassing the Zacks Consensus Estimate by 13.64%. The better-than-expected results were primarily driven by an increased top line.

Revenues jumped 15.1% year over year to $68.6 million and EBITDA surged 21% to $15.3 million.

The company registered a record in-quarter renewal rate by reaching the 94% mark; the highest since the first quarter of 2006. Moreover, the 23% increase in annualized net new sales also marked a record first quarter upside.

Guidance for 2012 Raised

After reporting solid first quarter results, CoStar Group raised its sales outlook for 2012 to between $284 million and $288 million from $281-$285 million. Adjusted EPS is now projected at $1.32 to $1.40, instead of $1.27-$1.39.

The completion of the LoopNet acquisition at the end of April further boosted its outlook for 2012. CoStar now estimates revenues in the range of $339 million to $347 million and adjusted EPS in the range of $1.36 to $1.52.

Earnings Estimates Moving Higher

The Zacks Consensus Estimate for 2012 and 2013 rose 1.5% and 14.5% in the past 30 days to $1.22 and $1.90, respectively. This implies year-over-year estimated growth of 37% in 2012 and 55% in 2013.

Valuation Looks Expensive

Though the stock of CoStar Group is expensive with respect to most valuation metrics, it looks reasonable from its book value perspective. On a price-to-book basis, the shares currently trade at 2.80x, a 16.2% discount to the industry average of 3.34x. The company's long-term EPS growth projection of 20% is also higher than the 14.6% expected for the industry.

The stock has outperformed its 200 and 50-day moving averages over the last 3 months. With increasing estimates and a series of earnings beats, this stock should be a good addition to growth investors' portfolios.

CoStar Group is trading just 1.6% below its 52-week high. The company generated a year-to-date return of 11.8% versus 3.5% for the benchmark.

About the Company

Located in Washington D.C., CoStar Group provides data and information services to the commercial real estate industry in the United States, United Kingdom and France. It was incorporated in 1987 and employs about 1,500 employees worldwide. With a market capitalization of $1.90 billion, CoStar Group primarily competes with Reis, Inc. ( REIS ) and First American Financial Corporation ( FAF ).


 
COSTAR GRP INC (CSGP): Free Stock Analysis Report
 
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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 , Stocks

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