eBay Tops Estimates

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By Zacks Investment Research on October 16, 2008 | More Posts By Zacks Investment Research | Author's Website

eBay, Inc. (EBAY) managed to exceed the consensus EPS estimate by $0.05, due to a lower tax rate, higher interest income, and continued share repurchases. Management also lowered its fourth quarter guidance.

We are reducing our estimates for 2008 and 2009 once again. Macro headwinds and competitive pressures continue to weigh on the company’s gross merchandise volume, which declined 1% in the third quarter. Those negatives are offset by solid growth in its payments business and a rock solid balance sheet. The stock trades at an undemanding valuation of about 9x our 2009 EPS estimate, but slowing growth in eBay’s core business prevents us from becoming bullish on the stock.

We maintain our Hold rating. eBay shares are currently trading at 9.1x our 2008 pro forma EPS estimate and 9.3x our 2009 pro forma EPS estimate. We think this valuation is reasonable in light of eBay’s declining growth and $3.05/share in cash. Our six-month target price is $16.50, which is 10x our 2009 EPS estimate.

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