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Shutterfly
is scheduled to report third quarter 2008 results after the
market closes on Tuesday, October 28. Based on our analysis, we
at
eChristianInvesting are expecting SFLY to report
disappointing results that fail to meet Wall Street’s consensus
expectations.
Analyst
Expectations
We are
forecasting revenues of $32.8 million and EPS of ($.22). This
would represent essentially flat revenues from last year’s $32.6
million in the same period. The current analyst consensus calls
for revenues of $34.2 million and ($.23) EPS. On July 30, the
company gave 3rd quarter guidance for revenue of $33
– 36 million and EPS of $(.15) – (.30).
The third
quarter is traditionally difficult for retailers such as
Shutterfly, as there are no gift-giving holidays that occur
within the quarter. In addition, pricing pressures from the
declining economic environment has resulted in SFLY having to
offer more promotional pricing deals. Subsequently, we expect
that management will lower 4th quarter guidance which
will have a significantly negative impact on the share price as
the company relies on Q4 for over half their annual revenues and
100% of their net income.
Share
Performance
Shutterfly’s shares have been crushed this year - dropping over
74% to date. After posting an impressive 78% return last year,
SFLY has under-performed the overall market this year as the
Nasdaq is down 42% in the same time period.
Valuation
Despite
their falling stock price, Shutterfly’s shares are still trading
at 35x consensus 2009 EPS estimates. This is a steep premium to
the relative valuations of their peer group (highest in their
peer group). This premium valuation combined with the likelihood
of reduced guidance numbers will likely keep investors away from
this stock.
Recommendation:
Sell with a $4-5 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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