Ahead of the Bell: Shutterfly shares jump

Shutterfly shares rise on Web photo publisher's plan to buy Kodak's online printing business

Associated Press

NEW YORK (AP) -- Shares of Shutterfly Inc. surged before Friday's opening bell as analysts say the online photo publisher's plan to buy Kodak's online photo service will remove a big competitor and benefit growth.

Eastman Kodak Co., which filed for Chapter 11 bankruptcy protection in January, said Thursday that Shutterfly wants to buy Kodak Gallery for $23.8 million.

The deal would include the transfer of Kodak Gallery's 75 million U.S. and Canadian customer accounts and their images to Shutterfly, although Kodak customers can opt out.

Wall Street analysts backed top ratings for Shutterfly's stock, saying that the deal should solidify the company's position as the top online printer and lower its costs over time.

Jefferies analyst Youssef Squali said that while rivals Snapfish, American Greetings Corp. and Vistaprint NV could also make bids for the business, he believes that Shutterfly is the most compelling suitor.

A bankruptcy court must review the proposed sale of Kodak Gallery. Other potential buyers can still make offers for the division in a court-supervised auction. Squali expects a decision by the bankruptcy court in May.

"By taking out the number three player with an estimated $70 million in (fiscal year 2011) revenue, Shutterfly will eliminate a sizable competitor and solidify its position as the largest player in online consumer print," Squali, who rates Shutterfly at "Buy," wrote in a Friday note to investors.

Baird's Colin Sebastian backed his "Outperform" rating for Shutterfly, saying the addition of Kodak's customers could boost Shutterfly's annual earnings by at least 10 cents per share. He said the deal gives Shutterfly a new group of customers who may be interested in additional Shutterfly services, he wrote in an investor note.

Morgan Keegan analyst Justin Patterson raised his price target on Shutterfly to $35 from $30 because of the potential deal.

In premarket trading, Shutterfly shares rose $3.55, or 13 percent, to $30.46.

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