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Sohu.com
is scheduled to report third quarter 2008 results before the
market opens on Monday, October 27. Based on our analysis, we at
eChristianInvesting are expecting SOHU to report better than
expected results that beat Wall Street’s consensus expectations.
Analyst
Expectations
We are
forecasting revenues of $116.3 million and EPS of $1.02. This
would represent a 126% increase in revenues from last year’s
$51.5 million in the same period. The current analyst consensus
calls for revenues of $114.7 million and $.95 EPS. On July 28,
the company gave 3rd quarter guidance for revenue of
$112 – 116 million and EPS of $1.00 - $1.05.
Investors
have taken an ultra-conservative view on China recently. We
believe that is unwarranted as the Chinese government will
continue its recent efforts to stimulate the economy. Chinese
internet stocks in particular stand to benefit from the online
migration of the world’s largest population.
Share
Performance
To date,
Sohu’s shares are down only 10%. Until the last few weeks, the
company had actually posted an impressive gain for the year. It
has certainly exceeded the performance of its peers (which have
fallen over 30%), as well as the Nasdaq which has dropped 40%
this year.
Valuation
Shares are
now trading at only 11x consensus 2009 EPS estimates. This is
above the relative valuations of their peer group. While this is
a slight premium to its peer group, we believe that overall
valuations of Chinese stocks will rise in the coming months as
investors refocus on fundamental valuations.
Recommendation:
Buy with a $60 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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