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Tree.com (TREE) Up 6.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Tree.com (TREE). Shares have added about 6.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tree.com due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

LendingTree’s Q4 Earnings Miss on Higher Costs

LendingTree reported fourth-quarter 2018 adjusted net income per share of $1.22, lagging the Zacks Consensus Estimate of $1.51. However, the figure compares favorably with the prior-year quarter’s tally of 84 cents.

The company’s results reflected rise in expenses. However, higher revenues, with major contribution from non-mortgage products revenues, were a tailwind. Also, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) displayed impressive growth.

The company reported GAAP net income of $0.3 million or 2 cents per share compared with net loss of $6.5 million or 54 cents in the year-ago quarter.

For 2018, adjusted net income was $80.3 million or $5.70 per share compared with $51.7 million or $3.78 per share in 2017.

Rise in Revenues Partially Offset by Higher Expenses

For 2018, total revenues were $764.9 million, up 23.8% year over year. The revenue figure also surpassed the Zacks Consensus Estimate of $770.1 million.

Total revenues grew 26% year over year to $202.7 million in the quarter. The rise primarily stemmed from higher non-mortgage product revenues, partly offset by lower mortgage revenues. However, it missed the Zacks Consensus estimate of $207.8 million.

Total costs and expenses were $200.2 million, up 24.3% from the prior-year quarter. This upswing primarily resulted from rise in almost all components of cost.

Adjusted EBITDA totaled $39.4 million, up 33% from $29.6 million reported in the prior-year quarter.

As of Dec 31, 2018, cash and cash equivalents were $105.1 million, down nearly 71.5% from Dec 31, 2017. Long-term debt climbed 5.3% from the year-end to $250.9 million. Total shareholders' equity was $346.2 million, up 17.4% from the Dec 31, 2017 level.

Capital Deployment Activity

During the reported quarter, the company repurchased 174,000 shares of its common stock at a weighted-average price of $203 per share for a total cost of $35.4 million.

Outlook

Concurrent with the fourth-quarter results, management provided first-quarter 2019, as well as revised its full-year 2019 estimates.

First-Quarter 2019

  • Total revenues projected at $235-$245 million, up 30-35% year over year.
  • Adjusted EBITDA estimated in the $37-$40 million band. This represents growth of 17-26% year over year.
  • Variable Marketing Margin is projected at $82-$86 million.

Full-Year 2019

  • Total revenues of $1,010-$1,045 million predicted, up from the previous projection of $990-$1,030 million. This represents growth of 32-37% year over year.
  • Adjusted EBITDA anticipated in the $205-$215 million band, up from the prior projection of $195-$205 million. This represents 34-40% year-over-year improvement.
  • Variable Marketing Margin is projected at $385-$400 million, up from the prior estimate of $365-$385 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -34.94% due to these changes.

VGM Scores

At this time, Tree.com has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Tree.com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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