Firm notes they are taking advantage of the recent 13% pullback in VPRT shares to upgrade what they have consistently viewed as a Core Internet Holding and one of the handful of ‘Net companies with a sustainable 20%+ 3-year EPS growth outlook. Their $62 PT is based on 22X our C2011 EPS estimate of $2.80. Three Upgrade Reasons:

1) Recent Market Reaction Overlooks Key Company Trends — On 11/16, a key Senate Committee published a highly negative report on Online Membership Programs, which listed VistaPrint as a beneficiary of these programs. This was the negative catalyst. Yet, Citi believes that the market reaction misses a) the Core Margin leverage in VPRT's business model – they estimate organic Gross Margin (excl. the high-margin Membership Fees) has increased from 59% to 63% over the past year; and b) the increasing immateriality of these Fees to
VPRT – from 16% of profits in 2009 to an estimated 5% in 2010 to 0% in 2011.

Specifically, they estimate VPRT's organic Gross Margin (excluding the high-margin Membership Fees) has increased from 59% to 63% over the past year.



What has caused VPRT's Core Margins to expand? Citi believes the key factors have been scale, learning curve efficiencies, and the rollout of higher-margin Digital Subscription services, such as Website Design and eMail Marketing.

2) Citi Believes VPRT's New Product Rollouts & Investments Are Creating Long Growth Runways — Through the last three Recession quarters, VPRT maintained 32%-35% Y/Y Core organic revenue growth, highlighting the company's secular growth opportunity – the online migration of Small Business marketing solutions. And they believe the recent rollout of high-margin products such as Website Design, eMail Marketing, and Online Search Placement – as well as new production facilities in Asia-Pac – are creating greater crosscategory/
cross-geography revenue opportunities.

3) Firm's Recent Factory Tour Gives Them Increased Confidence in VPRT's Growth & Efficiency Outlook — Per their 11/17 tour of the company's key Windsor, Ontario, VPRT will be doubling the size of its production facility by mid/late 2010. Further, Citi's qualitative tour takeaway highlight the company's efficiency steps/opportunities across Labor, Materials, Shipping & Overhead.

View Risk-Reward As Interesting Near- and Long-Term — Near-term, they view VPRT as one of the key Internet Market Share beneficiaries of the Recession. Long-term, VPRT continues to screen well against Citi's 4M Framework, including Management Team, Competitive Moats, Market Opportunity, and Business Model.

Notablecalls: I suspect this upgrade comes a bit of a surprise to many, especially the shorts. With the short interest close to 45% of float, the shorts had been feeling a lot of pain lately. They got a few breaks after Goldman Sachs downgraded the stock back in October and even talked Barron's to publishing a negative story on the co two weeks ago. That helped to knock the stock down from $55 to about $50. It looked like more downside was ahead.

Until this morning. With Citigroup upgrading the stock to a Buy, I think there will be more pain in store for the shorts. They may be right in thinking, but new 52 week highs are likely on the way regardless.

Taser (TASR) also went where it belonged EVENTUALLY but few folks who shorted that stock were alive to celebrate. Same probably goeth for VPRT.

The stock will trade to $52 today for sure with $52.50+ not out of the question if the market continues to play ball.

Let's see how it works out.