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Shutterfly Analysts Weigh Fate as Forecast Miss Sinks Shares

Natasha Rausch
Shutterfly Analysts Weigh Fate as Forecast Miss Sinks Shares

(Bloomberg) -- Shutterfly Inc., the e-retailer of personalized frames and photo albums, sank as much as 13 percent Wednesday after its fourth-quarter results and forecast missed estimates.

Analysts were divided on the company’s strategic review as Chief Executive Officer Christopher North plans to step down in August. Bulls on the stock such as KeyBanc see the formation of a strategic review board providing “valuation support.” On the other side, bears like Goldman Sachs cautioned that results continue to be hampered by a decline in its core revenue and increased competition.

Here’s what Wall Street is saying:

SunTrust, Youssef Squali

Benefits from Lifetouch -- which was acquired last year and reported in-line results in the period -- are taking longer to materialize, and the company’s turnaround “remains elusive” amid another disappointing quarter. That means investors are going to have to wait longer to get paid.

“The board’s undertaking of a strategic review of the business at this time seems appropriate considering how long this turnaround has been in the making.” And a potential takeout is likely given that private equity investors approached the company in the past. But Shutterfly is growing slower now, although it’s much larger with LifeTouch.

Reiterates buy, lowers price target to $55 from $70

Goldman Sachs, Michael Ng

Even though the company’s new Ebitda target of $400 million to $450 million is “more achievable,” there’s still an unfavorable risk-reward as result of the “declining relevancy of the core paper-based products category combined with heightened competition,” Ng said, lowering his price target to $36 from $40.

Reiterates sell rating

KeyBanc, Edward Yruma

A strategic process “may unlock value,” as the company’s consumer segment was softer as a result of weakness in its core prints and holiday cards business in the fourth quarter. Tiny Prints was a “particular drag” amid intense competition. But 15 percent growth in the company’s Personalized Gifts and Home Decor segment helped offset consumer weakness.

Shutterfly’s risk/reward profile is attractive as the strategic review committee evaluates alternatives, and “the potential for an acquisition should provide a backstop to valuation.”

Reiterates overweight rating, price target $55

Aegis Capital, Victor Anthony

The company has been down the M&A road before. But given challenges in the core business and uncertainty as to whether potential buyers are financial or strategic, shareholders should hang on.

Anthony predicts a strategic acquirer could conceivably pay $70 per share, compared with Tuesday’s closing price of $45.22, whereas a financial acquirer could pay $60, considering e-commerce group names excluding Amazon.com Inc. fetch a higher multiple.

Reiterates buy rating, lowers PT to $55 from $65

(Updates with chart, Aegis Capital commentary.)

To contact the reporter on this story: Natasha Rausch in New York at nrausch@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch

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