PCNA receives "Buy" rating!
The news did not yet hit the wires. :-)
Full report available at:
equitynet.net
OUTLOOK/VALUATION
We assign the stock a Buy rating. We feel that the Company?s relationships with and future penetrability of the major Bar associations alone warrant a higher valuation than PCNA?s current $7.8 million market cap. Attorneys are some of the most computer literate and prolific online consumers in the U.S., and the specific targeting of this niche is a sound strategy. By forming strategic alliances and sharing revenue with the Bar associations, the Company is incurring little additional marketing costs and giving the Bar associations an incentive to urge their members to purchase goods and services online. This is a "win-win" situation.
The members can purchase office supplies, computers, airline tickets or other goods at a significant discounts, while earning redeemable LawMiles;
The Bar associations share in the revenues from these purchases, thus diversifying their revenue base beyond membership dues; and
PCNA strengthens its relationships with the Bars and gains the ability to monitor the buying patterns of its constituents, the real value of an e-commerce enterprise.
Normally, small cap companies do not receive the generous multiples enjoyed by their large cap counterparts, but by applying what we believe are conservative multiples to the Company, we gain target prices that are well above the current $2.25. From a Price/Sales perspective, the normal valuation measure for an Internet concern, PCNA is currently trading at 1.3X expected fiscal 1999 sales. This is extremely low for a company with the solid growth prospects of PCNA. Even at the same multiple for fiscal 2000, the stock would be selling at $3.82 next year. We feel that a more appropriate multiple is in the 4X range, which yields a stock price of $10 using fiscal 2000 expected sales and expected shares outstanding.
Using P/E, we feel that the Company can easily command a multiple of 25X forward earnings. Again, using fiscal 2000?s $0.36 earnings-per-share figure as the basis of our analysis, a P/E of 25 yields a stock price of $9. Therefore, we are assigning a 12-18 month price range of $8 - $10 per share.
The management team is experienced and well connected in the legal publishing industry. The market for the Company?s product is growing and PCNA has differentiated itself in an industry where product packaging is the key to success. The Company?s ability to transfer its model to the medical industry, a market whose online strategies are much more familiar to investors, is also a strong possibility, as is the college directory market. All in all, we feel a strong argument can be made that the Company is currently undervalued. |
