) has what it takes to be a Zack Rank #1 (Strong Buy). Strong
earnings surprises and growth make us take a deeper look.
IAC/InterActiveCorp operates in four segments: Search, Match,
ServiceMagic, Media and Other. The Search segment includes Ask.com
and Dictionary.com. Chemistry.com & Match.com are among the
several other dating sites make up Match segment. ServiceMagic
matches consumers with service professionals. And Media is the
segment that includes sites like Vimeo, Pronto.com and Shoebuy.
Great Earnings Streak
Over the last six quarters, IACI has five beat and one miss. That
miss was in the December 2010 quarter, setting up an easy
comparable for the upcoming earnings report on February 1, 2012. A
year ago, analysts were expecting $0.22 and the company reported
earnings of $0.06 or a miss of $0.16. The stock, however, traded
higher as a result of the earnings, suggesting the market was not
paying much attention to the earnings and was pleased to see the
Liberty Media stake solid for cash and ownership of EVite and
Analysts have been consistently move earnings estimates higher for
FY 2012. In January of last year, the Zacks Consensus Estimate
called for $1.28 in earnings for 2012, a number that has move
higher by more than 52% to $1.95 at present. Some believe that the
steady increase of earnings may make the company look again at
spinning off one or more of its properties.
Getting your arms around IAC
One reason the IACI may not be properly valued is the complexity of
the overall situation. ICAI acts as a holding company for dozens of
web properties, including Match.com, ServiceMagic, and several
search properties like Ask.com and Mindspark. The large number of
holdings can make some investors just give up instead of placing a
value on all of the companies.
Spin offs have spin offs
One time does not a trend make, but the spin-off of Expedia from
IAC has resulted in a spin-off of its own. TripAdvisor was spun out
from the online travel agency Expedia. Previous spin offs such as
Tree.com and Ticketmaster have not had spin offs of their own, but
the precedent has been set as IAC is an incubator for internet
companies. This valuation creation cannot be overlooked.
Due to the nature of a conglomerate, it's hard to assign a single
valuation to the company as a whole. Drastically different segments
tend to perform better or worse than other segments, hiding both
strengths and weaknesses of the broader portfolio. IACI trades at
21x forward earnings and a meager 1.8X sales. There could be
expansion of those multiples with more earnings beats in the
IACI holds a Zacks #1 Rank (Strong Buy), in part, due to consistent
earnings increases from multiple analysts. A look at the price and
consensus chart below shows how higher earnings estimates have led
the stock higher. The sharp drop off in 2008 was a result of
earnings being re-adjusted due to a spin off.
Brian Bolan is the Aggressive Growth Stock Strategist for
Zacks.com. He is also the Editor in charge of the
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