from the strret.com must read
Egghead.com Hatches Plan to Attract Wall Street
SAN FRANCISCO -- Long neglected by analysts, Egghead.com
(EGGS:Nasdaq)
might be about to get some serious attention.
"It's a company that always had some promise. It's got a good brand, dedicated
customers, and it's tried to make do with a series of tough challenges," says
Arcadia analyst John Taylor, who gives the stock a rating of market outperform
and whose firm has no underwriting relationship with Egghead.com. Taylor says
that Egghead.com has been overlooked because it "has not been real
communicative with the Street."
That's changing, thanks to Egghead.com's secondary offering last Friday. The
company sold 5 million shares of its common stock at a price of $13.50 per share
with the help of four underwriters: Hambrecht & Quist, BancBoston Robertson
Stephens, Prudential Securities and US Bancorp Piper Jaffray.
On Monday, H&Q analyst Genni Combes initiated coverage of the stock with a
buy rating. Combes says the company is one of the top e-commerce sites and is
"a leader in off-price computer product retailing," with more than 750,000
customers. She expects fiscal 1999 revenues of $143 million, $200 million in
fiscal 2000 and $370 million in fiscal 2001. Egghead.com rose more than 4%
Monday and another 4% on Tuesday, when it closed the day at 15 3/4.
Initial buy ratings from underwriters, while hardly surprising, can generate strong
interest among investors. When EarthWeb (EWBX:Nasdaq) drew buy ratings
from
its underwriters J.P. Morgan and Volpe Brown Whelan on Nov. 11, the stock
climbed 58% in a day. When BancBoston Robertson Stephens initiated
coverage on eBay (EBAY:Nasdaq) with a buy on Oct. 19, the stock jumped
26%.
When the other underwriters -- Goldman Sachs, BT Alex. Brown and Donaldson
Lufkin & Jenrette -- initiated coverage with high marks over the following week,
eBay soared another 62%. Prodigy (PRGY:Nasdaq) rose 13% earlier this month
when underwriters ING Baring Furman Selz and Bear Stearns picked up
coverage March 8, both with buy ratings.
The additional coverage is likely to keep pushing the stock higher, says
Christopher Lord, a buy-side analyst for Amerindo Investment Advisors, which
holds no position in Egghead.com. Investors who buy Internet stocks are always
looking for a reason to buy into a stock, and the added attention "makes people
more confident in the stock," he says.
The reports may finally answer some questions that Egghead.com fans have
been asking for a while: Why, for example, does Egghead.com have such high
revenues and such a relatively low valuation? Egghead.com is trading at 2.59
times its trailing 12-month revenue of $180.96 million. Beyond.com is trading at
18.18 times its trailing revenue of $36.65 million. So, why the discrepancy?
"I wonder that all the time," says Arcadia's Taylor. "It's an incredible irony." |
