Thursday, January 25, 2007

Calls of Note Part 2

- Stifel notes they believe large-cap Internet stocks are in the midst of a positive revaluation toward fair value. The sector has materially underperformed the broad market rally over the past several months. Investors need exposure to underperforming, high quality assets that quickly have become "need to own" names given the reversal in relative performance.

Firm believes (NASDAQ:AMZN) business is mispriced and they anticipate that the company is entering at least a period of 12-18 months of accelerating operating leverage. In the text of this note, they show the 23 different areas of investment that AMZN was involved in over the past year. These initiatives have accelerated AMZN's revenue growth to 26% on an organic basis, or the highest level of the large-cap Internets, excluding Google. During the past year, free cash flow has significantly delevered and has also been impacted by one-time events such as a patent payment, Toys R' Us litigation fees, and the removal of the excess tax benefit from stock options from its FCF calculation. This delevering begins to reverse in 2007 and accelerates into 2008. Overall, the firm anticipates 29% FCF growth in 2007 over 2005 (they exclude the 2006 trough year) and an additional 29% FCF growth in 2008.

Reits Buy and $44 tgt.

Notablecalls: One for investment types. It also gives a glimpse of the sentiment surrounding the large-cap Internet names.

No comments: