(By Balaseshan) Oppenheimer & Co. analyst Jason Helfstein downgraded rating on shares of Zipcar Inc.
) to "Perform" from "Outperform" due to marketing-related slowdown and UK headwinds. The brokerage cut its price target to $8 from $24.
Following disappointing 2Q results and guidance, Helfstein downgrades ZIP shares and reduces his price target. He thinks ZIP needs to overhaul its marketing department to focus on member growth and drive existing member usage, both likely to take several quarters.
Additionally, the UK continues to face economic headwinds. While investors are likely to blame competition, management acknowledged mistakes with 2Q marketing efforts, the analyst noted.
Helfstein said his revised price target equates to 14 times 2014 EBITDA, less a 15% discount or 20 times 2014 EPS. His model now suggests capital would be needed to fund growth beyond 2014, hence the higher discount rate.
The brokerage reduced its 2012 adjusted EPS estimate to $0.27 from $0.37 and its 2013 estimate to $0.28 from $0.83.
The analyst is lowering 2012 and 2013 revenue by 6% and 19% year-over-year, respectively. EBITDA declines by 25% and 63% in 2012 and 2013, respectively. As a result, he has lowered "terminal" 2018 margin to 12.5% from 17.7%, which cuts 2018 EBITDA by 55%.
Helfstein expects ZIP shares to struggle to find the correct investor. With member and revenue trends decelerating, shares will be unappealing to "growth" investors, while "value" investors will wait for 0.5 times sales, and/or a capital raise.
ZIP is trading 34.34% lower at $6.98 on Friday. The stock has been trading between $6.50 and $25.88 for the past 52 weeks.