Harris Interactive Fair At $2

Harris Interactive, Inc. (HPOL) was slightly below the Street’s Q4 EBITDA estimate, but it topped its revenue projection and edged its EPS expectations.

The company is hopeful once more that it can take or maintain share, cut its costs more, sees upside in Canada and Asia from its acquisitions and that its new segment executives can ramp quickly. Given the management’s spotty forecasting record, the hopes could again prove optimistic. We will wait until we see signs of improvement, which might take several quarters, and how domestic and international economies act.

We believe that as a result of the slowdown in recent sales bookings trends, the company will have a difficult time growing revenues in FY09, especially in the first half of the year. While we believe the company will continue to take steps to control costs, we believe the fixed cost component of business will continue to place a drag on EBITDA margins.

Currently, Harris Interactive is trading at 23.6 times our FY2009 EPS estimate of $0.07. However, FY2009 guidance had earlier been slashed and expectations will be contained. However, we would wait to see if the new business pipeline improves significantly enough on an organic basis in FY2009.

As a result of weaker near-term growth prospects, we maintain our Hold rating with a reduced target price of $2.00. Our target price is derived by applying a target multiple of 28.6x our FY2009 EPS estimate, which is currently higher than the median P/E multiple for the industry.

Posted in Categories: Canada, Contributor, External Research, Stocks, USA.

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