Staying Big on Smith Micro

Smith Micro (SMSI) is a developer of wireless communications software and utility software for multiple OS platforms. It has significant relationships with several large cellular providers and OEM cell phone manufacturers.

First quarter results were in line with our expectations and we are not changing our forecasts for 2008 and 2009. The company announced a (potentially) significant deal with Sprint (S)/Samsung that will add to revenue in the second half of the year.

Although the communications software market is highly competitive, there is no direct analog of Smith Micro. The closest in nature is Symantec (SYMC) with its suite of diagnostics and utilities.

However, QuickLink Mobile is usually sold in conjunction with a PC card, and there are two companies in this market. Qualcomm's (QCOM) markets are driven by new infrastructure and phone technology, so we have listed its valuation parameters. There are two very small companies in the voice and data communications market, Xfone and Roaming Messenger. The latter company is too small to provide meaningful comparisons.

The stock is currently selling at below the group averages. Since future earnings will be taxed, we feel that the PEG ratio should be closer to the group average. This equates to a price close to our target of $12 a share.

ValueClick Trades at Fair Value

ValueClick, Inc. (VCLK) is a leader in the online advertising industry, which we believe is a growth business as traditional marketers shift advertising spending from traditional media to online outlets. However, VCLK is facing the fallout from an FTC [Federal Trade Commission] investigation in its lead generation business and one of its largest customers, eBay (EBAY), has brought its advertising network inhouse.

Although VCLK raised full-year guidance, this was largely the result of a $5 million one-time gain in the first quarter, and lowers guidance for the remainder of the year by default. We therefore maintain a Hold rating on the shares of VCLK and set a $20.50 price target, a multiple of 25x our EPS estimate.

VCLK is currently trading at a P/E multiple of 25x our 2008 earnings per share estimate of $0.82, a discount to the industry median. Due to the fallout of the FTC investigation, the company s lead generation revenues were down for the third straight quarter. Moreover, the company faces intense competition from Google's (GOOG) Performix and other direct advertisers and has lost its largest customer eBay. We believe this will hurt the company going forward.

Cox Radio Maintains at a Hold

Cox Radio (CXR) continues to generate healthy free cash flow and maintains the strongest balance sheet in the industry. At 2.3x debt/EBITDA, Cox Radio is significantly underleveraged relative to its peers (radio group median is 6.5x), which provides it with room to continue repurchasing shares at its current rate. In turn, this should bolster ROE and provide some downside price cushion, as well as implicitly increase the stake of its parent company, Cox Enterprises, which we think will inevitably buy the 65% of CXR it does not already own.