by Hilary Kramer | November 29, 2013 8:04 am
The S&P 500 broke out of its trading range and rushed to new all-time highs in anticipation of dovish testimony from proposed new head of the Federal Reserve, Janet Yellen. That anticipation turned into reality, as Dr. Yellen implied a continuation of current monetary policy, sending the Dow and S&P to new record highs over the past week.
I also anticipated this kind of upswing, which is why I recommended to open a new position in Monster Worldwide (MWW) before the renewed market enthusiasm hit.
Right now I’d likd to take a closer look at my recommendation.
MWW provides Internet-based job search and career advice services, and is responsible for the well-known site Monster.com. With several competitors popping up over the years, the company differentiates itself by offering products and services to enhance the user experience.
Through its BeKnown App, Facebook (FB) users can share their Monster.com profile with employers, and add Facebook friends to their professional network. To their employer customers, Monster.com offers screening tools that allow them to find the right candidate in an efficient and effective manner, including Monster Power Resume Search. For advertisers, MWW’s Career Ad Network (CAN) is a recruitment-focused online advertising network. CAN reaches an average 113 million global users each month.
MWW has also made a few acquisitions to build up its business offerings, the most significant of which was the 2010 purchase of HotJobs from Yahoo (YHOO)for $225 million. In addition, the company entered into a three-year commercial traffic agreement whereby Monster became Yahoo’s exclusive home page provider of career and job content in the United States and Canada.
Monster’s operations are truly international in nature, with websites in over 40 countries. In 2012, the company’s Careers-International segment accounted for 39% of total revenues, with Careers-North America bringing in 52%, and Internet Advertising making up 9%.
Monster Worldwide has seen earnings fall in recent years, taking a hit during the recession (16 cents a share in 2009 and -27 cents a share in 2010) before improving in 2011 on better customer activity and new international products.
However, pressure was renewed in 2012, as orders fell 17% in Europe and the telesales business in North America was weak. Revenues in North America fell 4.7%, and excluding restructuring charges, operating income fell to $63.5 million from $75 million. International revenues fell 12% to $351 million, while operating income fell to $29 million from $69.5 million. Tax benefits allowed EPS to increase to $0.77, although this does not reasonably represent what the company earned on an ongoing basis.
As a result of these disappointing results and the sagging stock price, management announced plans to explore strategic alternatives designed to enhance shareholder value in March 2012. Later that year, MWW began to restructure, exiting markets in Turkey and Latin America in the fourth quarter, and selling its Careers-China business in early 2013.
Results continued to decline through the first nine months of 2013, with revenues down over 10% to $608.6 million, and EPS from continuing operations falling to $0.21 from $0.56 a share. Sales and operating income from the North America and International segments remain under pressure.
However, investors have taken encouragement from signs that the company’s business is starting to bottom, and the stock has rallied since third-quarter earnings were released last Thursday. While North America sales declined 5%, management indicated on the conference call that sales from most channels were flat, and they think business is now at a bottom. They are also seeing some signs of stabilization in Europe, as improved sales efforts drove improvements in the UK business. In Asia, the South Korean and India businesses, where MWW is a market leader, are doing well.
Overall, management saw enough bright spots to give guidance for fourth-quarter EPS of 9 cents-13 cents per share, which could provide a potentially nice bump from the 9 cents a share earned in the third quarter, and would be well above expectations of 7 cents a share. This kind of outlook has lifted some pressure from the shares and signals solid upside potential ahead.
MWW also offers an attractive valuation, trading at a cheap 4.13X EV/EBITDA. Plus, the recent sale of a 49.9% interest in the company’s Korean business to a private equity firm for $90 million (the company’s entire enterprise value is roughly $550 million) shows that at least parts of the business have the potential to be acquired at prices above where the market values them.
Finally, Monster still remains a good brand name, as evidenced by the fact that over 90% of Fortune 1000 companies place ads in the service. While there are some risks involved given the weak earnings performance, I see MWW as a prime example of a stock that will head higher before the turning of the fundamentals is fully evident.
I believe the giveaway valuation combined with the preliminary signs of bottoming should be enough to support shares and position itself nicely for coming improvements.
Source URL: http://investorplace.com/2013/11/mww-monster-worldwide-stocks-to-buy-yhoo/
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