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Tree.com (TREE) Down 13.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Tree.com (TREE). Shares have lost about 13.9% in that time frame, underperforming the S&P 500.

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

LendingTree Q2 Earnings Miss on Higher Expenses

LendingTree reported a negative earnings surprise of 13.9% in second-quarter 2019. Adjusted net income per share of $1.18 lagged the Zacks Consensus Estimate of $1.37. Further, the figure came in below the prior-year quarter’s reported figure of $1.47 per share.

The company’s results were adversely impacted by rise in expenses and lower mortgage revenues. 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 $13 million or 87 cents per share compared with $44.8 million or $3.17 in the year-ago quarter.

Revenue Growth Partially Offset by Higher Expenses

Total revenues soared 51% year over year to $278.4 million in the second quarter. This upside primarily stemmed from higher non-mortgage product revenues, partly mitigated by lower mortgage revenues. Furthermore, the reported figure outpaced the Zacks Consensus Estimate of $267.4 million.

Total costs and expenses came in at $266.1 million, flaring up 60.3% from the prior-year quarter. This upswing primarily resulted from rise in almost all components of cost.

Adjusted EBITDA totaled $46.3 million, up 25% from $37.1 million reported in the prior-year quarter.

As of Jun 30, 2019, cash and cash equivalents were $51.3 million, down nearly 51.2% from Dec 31, 2018. Long-term debt was up 2.7% from the prior-year end to $257.6 million. Total shareholders' equity was $373.9 million, up 8% from the Dec 31, 2018 level.

Capital Deployment

During the first six months of 2019, the company repurchased 17,501 shares of its common stock at a total cost of $4.0. As of Jun 30, 2019, around $181.2 million of the previous authorizations to repurchase common stock remain available.

Outlook

Concurrent with the second-quarter results, management provided the third-quarter guidance, as well as revised its full-year 2019 estimates.

Third-Quarter 2019

  • Total revenues projected at $290-$300 million.
  • Adjusted EBITDA estimated in the $55-$60 million band.
  • Variable Marketing Margin is projected at $104-$109 million.

Full-Year 2019

  • Total revenues of $1,080-$1,100 million predicted, up from the previous projection of $1,060-$1,090 million.
  • Adjusted EBITDA anticipated in the $195-$205 million band, down from the prior forecast of $210-$220 million.
  • Variable Marketing Margin is projected at $390-$405 million, down from the prior estimate of $400-$415 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 -58.63% due to these changes.

VGM Scores

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

Overall, the stock has an aggregate VGM Score of F. 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 indicates a downward shift. It's no surprise Tree.com has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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