Friday, June 06, 2008

Focus Media (NASDAQ:FMCN): Bounce?

Several firms are out in defense of Focus Media (NASDAQ:FMCN) this AM:

- Goldman Sachs notes Focus cut its 2008 non-GAAP net income guidance by 7% and they assume the stock may initially fall by a similar amount as investors debate whether the guidance revision was purely one-time or part of a broader picture of Focus' growth slowing in response to fewer and smaller acquisitions. However they believe the stock had traded down on market talk of the possibility of weak guidance over the past two weeks, which may limit further declines. GSCO lowers EPS estimates for 2008E/09E/10E by 45%/20%/17% to US$0.53/$1.78/$2.32.

Maintains Buy and lowers tgt to $58 from $66.

- Citigroup notes Focus lowered FY08 rev guidance by US$40m and profits by US$20m, attributing most of the cuts to effects of the Sichuan earthquakes. While it is, of course, understandable that Focus would be impacted, as indeed many Chinese companies have been, they feel the bigger issue, at least near-term, is that most investors expected, notwithstanding the earthquakes, for Focus to at least maintain its full year guidance. Some investors no doubt will be disappointed.

But consider this: 1) Focus slightly beat 1Q results, notwithstanding not being able to book US$11.3m of Mobile Adv revs in 1Q due to GAAP rules (if they could have booked the Mobile Adv revs, the 1Q beat would have been significant); and 2) 2Q guidance is for +20% QoQ growth after taking out US$20m for the earthquakes. But for the earthquakes, 2Q guidance would likely have been a very strong - +30-33% QoQ - well ahead of Street estimates. So, once again, we are left with a very strong (albeit temporarily impacted) fundamental business, but with a mismatch vis-a-vis Street expectations. Stock will likely trade down near-term off the missed expectations, but should ultimately trade off the fundamentals. Many investors will rightly be frustrated (as are they), but theynonetheless maintain their fundamental outlook, and hence, Buy rating ($80 tgt)

- Piper Jaffray says Focus Media reported a mixed quarter with strong top line performance from the Commercial and Framedia segments which was somewhat overshadowed by the perceived lower top line number and lower 2008 guidance. They would note that while total revenue came in slightly below their estimate, Focus Media only recognized $0.2M in revenue from the wireless business in Q1 compared with firm's expectation of $12.9M of wireless revenue in Q1. If the discontinued wireless revenues were included, total revs would have been $173M, 7% above their estimate.

While the $40M total impact in 2008 of the earthquake is larger than they anticipated, they believe the impact of the earthquake is a near term event and they continue to have a favorable long term outlook of the Chinese out-of-home advertising market. PJ highlights that the Commercial and Poster Frame networks each had very strong quarters in Q1. They believe the current valuation of 20x/15x 08/09 PF remains compelling. Maintains Buy rating and lowers PT from $68 to $63 (25x 2009 PF EPS) on lowered estimates.

Notablecalls: I think FMCN represents an interesting bounce candidate today.

3 comments:

bowdointrader said...

Another nice Notable Failure. How can anyone be so consistently wrong and represent themselves in this way?? If you review the record, this is a total joke.

notablecalls said...

thanks!

Timothy Hussar said...

hahahah, out of the woodwork, they come