Give CNET's Strategy Time to Work
CNET Networks, Inc. (CNET) reported a strong fourth quarter of 2007 with revenues exceeding our estimates on the back of strong media revenues and earnings in-line with our estimates. While the company faces a tough market environment in 2008, CNET is well positioned to benefit from any upswing in online advertising growth due to its leading brands as well as relationships with large advertisers.
CNET paid $20.5 million to buy FindArticles.com from LookSmart (LOOK), which has online content of about 11 million articles from over 3,000 sources. We are increasing our revenue estimates for 2008 while lowering our earnings estimate according to the guidance provided by the company.
For 2008, our revenue estimate is calling for growth of 10.2% over 2007 while earnings per share will decline marginally compared to 2007. CNET understands that access to premium content is critical for user online media experience. The company still has $107 million in cash as per the last published results and has set up a $250 million credit facility to buy more assets.
Moreover, it has lifestyle-oriented talent which could allow it to diversify away from technology, which is likely to help gain traction with advertisers. However, we continue to remain cautious about the stock in the near-term due to its sole dependence on Internet advertising revenues, particularly from Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), etc. who have more financial power.
We continue to rate shares of CNET a Hold as we feel that it will take some more time for the company to realize the full potential of its current restructuring and territorial business consolidation initiatives in China and France. We estimate that there is a possibility for around 4.6% upside over the next six months, and we have fixed a target price of $7.90 or 2.63x our 2008 sales estimate. We would also like to have more visibility on 2008 revenues before we review our rating on shares of CNET.
Udayan Mukherjee contributed to this report.
Hold-Rated Penske Well Positioned
Penske Auto Group (PAG) is well positioned among the auto retailer peer group. The Penske Auto Group's specialty and luxury product mix offers opportunity for long-term growth. Additionally, we are encouraged by positive same-store sales in both new and used vehicles. However, rising interest rates, challenging industry conditions and a leveraged balance sheet dampen our outlook on the stock.
For the 2007 full year, earnings from continuing operations per diluted share were $1.35, down from $1.40 in 2006. Revenues for the year increased 16.5% to $13 billion. The company divested 21 franchises in 2007 that generated about $370 million in annualized revenue.
The company currently projects earnings from continuing operations in the first quarter of 2008 to be in the range of $0.32-$0.34 per share. For the full year, the company estimates earnings from continuing operations to be in the range of $1.63-$1.71 per share.
Currently, shares of Penske Auto Group are trading at 11.4x our 2008 EPS estimate of $1.68. The company has a unique business model, a strong luxury automotive market and a high growth rate. But we rate the stock a Hold and maintain our six-month target price of $22, which is 13.1x our 2008 EPS estimate.
Ests Moderated for RenaissanceRe
RenaissanceRe's (RNR) 4Q07 operating income was $2.64 per diluted common share, compared to $2.74 per diluted common share for the prior-year quarter. The results included a $131.2 million charge related to write-down of RNR's interest in ChannelRe.
Gross premiums were flat in the Reinsurance segment but down 19% in the Individual Risk segment.
