- Goldman Sachs is out with an Actionable Call on Focus Media (NASDAQ:FMCN) saying that in their view poor free cash flow generation has to some extent undermined P/E-based valuations for Focus stock, with investing cash outflows generally exceeding operating cash inflows since 4Q2006. Following a discussion with management, they believe 2Q2008 could be the first of several quarters of substantial free cash flow generation, as Focus has already made its 2008 payment for CGEN in 1Q2008 and as receivable days outstanding should improve due to seasonality.
Focus is trading at 29X 2009E free cash flow estimate and 13X 2010E, assuming lower earn-outs in 2010E. After reviewing Focus' treatment of amortization and stock based compensation (SBC), they raise GAAP earnings estimates by 33% for 2008E, 16% for 2009E, and 13% for 2010E, partly reversing excessive reductions they made post 1Q2008 results.
Goldman notes they are frustrated by Focus' recent accounting complexities (such as extra amortization) and guidance, but believe that in this specific instance of cutting guidance due to the earthquake after-effects, investors have penalized Focus for foregone revenue of $40 mn by reducing its market capitalization by close to $1 bn.
Reits Buy and $58 tgt saying they believe a quarter of positive free cash flow and the prospect of more to follow should calm market concerns about Focus' accounting and ability to grow organically.
Notablecalls: What can I say, this is an Actionable Call from Goldman Sachs. The stock got trashed despite several bullish defenses over the past couple of days but I think Goldman's Mitchell Haol will stop the fall. He went out and spoke to management, getting extra (actionable) details. That's what every analyst out there should be doing. Watch & learn!
I expect FMCN to trade higher today and in the coming days.
Focus is trading at 29X 2009E free cash flow estimate and 13X 2010E, assuming lower earn-outs in 2010E. After reviewing Focus' treatment of amortization and stock based compensation (SBC), they raise GAAP earnings estimates by 33% for 2008E, 16% for 2009E, and 13% for 2010E, partly reversing excessive reductions they made post 1Q2008 results.
Goldman notes they are frustrated by Focus' recent accounting complexities (such as extra amortization) and guidance, but believe that in this specific instance of cutting guidance due to the earthquake after-effects, investors have penalized Focus for foregone revenue of $40 mn by reducing its market capitalization by close to $1 bn.
Reits Buy and $58 tgt saying they believe a quarter of positive free cash flow and the prospect of more to follow should calm market concerns about Focus' accounting and ability to grow organically.
Notablecalls: What can I say, this is an Actionable Call from Goldman Sachs. The stock got trashed despite several bullish defenses over the past couple of days but I think Goldman's Mitchell Haol will stop the fall. He went out and spoke to management, getting extra (actionable) details. That's what every analyst out there should be doing. Watch & learn!
I expect FMCN to trade higher today and in the coming days.
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