OVER just announced earnings for quarter of 48 cents versus 33 cent expectations. With no growth, that would mean earnings of roughly a $2 per share. With the S&P P/E ratio of 20, that would make Overture a $40 stock. All of this assumes no AOL or Yahoo renewals.
The AOL deal was renewed for yet another week, and that means that it will certainly be renewed for the long haul and that only the details are being worked out. Even if Overture has to give up a much larger percentage of revenues to get AOL to sign back on, they will still profit tremendously. Yahoo will certainly follow because they need Overture just as badly. It is quite clear now that Google's relevancy and lower bids dont even come close to posing a threat (aside from the fact they may lose the lawsuit Overture has against them). Factor in all these things, and Overture could easily pull $3 per share or more per year. With the same P/E of 20, this would make it a $60 stock.
This is an extremely undervalued stock right now. Because of the dot-com stigma, investors are ignoring the incredible growth, market leadership, and stability they face. Even in the worst case scenario - no renewals, lower profit margins, and slowed growth in a bad economy, they are still going to pull in $2+ in earnings per year. Hang tight and watch what happens...might take a few more weeks or even another quarter, but people will wake up soon. I am looking for $45+ by the end of the summer. |
