Lackluster Forecast on Acxiom
We continue to rate Acxiom Corporation (ACXM) a Hold with a target price of $12. Management's guidance for fiscal 2008 remains lackluster and essentially suspended long-term financial guidance due to lack of visibility. Revenues are expected to be flat or down 1% compared to fiscal year 2007 while EPS, before any one-time gains or losses, is projected in the range of $0.60 - $0.65. On a GAAP basis, EPS is estimated to come between $0.81 and $0.86, including one-time gains/losses.
Acxiom's shares trade at a P/E multiple of 18.9 times our 2008 EPS estimate. The company had recently terminated an agreement to be acquired by Silver Lake and ValueAct Capital for $27.10 per share. The share price of ACXM was negatively impacted following the termination.
In addition to the negative fallout from the failed buyout, the other key negatives currently include poor revenue/earnings visibility, mainly due to the softening macro environment and the company's exposure to the financial services industry. Accordingly, we maintain our Hold rating on the shares of ACXM and have reducd our target price to $12, which implies a target P/E multiple of 19.1x our FY2008 EPS of $0.63 and 17.1x our FY2009 EPS estimate of $0.70.
Outlook Difficult for Avis Shares
The near-term outlook for the Avis Budget Group (CAR) is difficult to ascertain. The truck rental business is experiencing decreased rental days and pricing pressure. However, management is now more focused on operations after the restructuring in 2007. Revenue enhancement and cost-cutting initiatives have been implemented that should provide significant financial improvements.
Earnings visibility is limited, especially with a weakening economy, and historical valuation data is unavailable for Avis Budget Group. Therefore, the Hold rating is maintained for Avis Budget Group.
In its guidance for 2008 management expects domestic enplanements (the primary driver of on-airport rental volumes) to increase in 2008 compared to the prior year despite a relatively weaker macroeconomic environment, especially in the first half of 2008. Domestic time and mileage revenue per rental day is expected to increase and the domestic rental day volume is expected to increase approximately 3% to 5% in 2008 compared to 2007.
In addition, management plans to further reduce costs and enhance efficiency through Performance Excellence and other initiatives and expects the impact of the initiatives to exceed $40 million through 2008. Therefore, management expects the revenue, EBITDA and pre-tax income to increase in 2008.
The shares of Avis Budget Group have a limited valuation history due to the recent re-structuring of the parent company (Cendant) through spin-offs and asset sales in 2006. The target is $13.25 is based on a 11 P/E multiple on 12-month trailing EPS, which is approximately where a 7% growth company with an average levered balance sheet should be valued as the U.S. economy appears to be entering a recession.
Agrium a Strong Fertilizer Play
Agrium Inc. (AGU) is growing through acquisition and incremental expansion of existing operations. The proposed UAP acquisition is likely to drive revenues and profits for Agrium on the back of expanded product line in the major business segment.
Supply/demand is strong for nitrogen and phosphate fertilizers, and the company has high leverage to increasing product prices. Strong prices for most of the major grains and oilseeds are likely to benefit the three business units of the company. The company also has significant free cash flow.
Global nitrogen capacity is expected to expand by about 5% in 2008, which could pressure pricing and margins. AGU is adding a 1.2M ton urea facility that should be completed by 2011. The company is a low-cost producer with 67% of its nitrogen capacity in Canada where it enjoys a $1 2/MMBtu discount to US Gulf natural gas.
