Topeka Capital reiterated a Buy rating on Shutterfly Inc. (NASDAQ: SFLY) with a price target of $58. Comments follow reports from Bloomberg yesterday that said the company is working with Qatalyst Partners to find buyers. Analyst Victor Anthony thinks the company could fetch between $60-$70 per share.
“We have stated in past notes that SFLY is an attractive acquisition candidate, with e commerce companies like Amazon (Nasdaq: AMZN) being logical acquirers, as well as social media and cloud storage companies,” said Anthony. “For Amazon, it would be a category expansion and both companies are embracing the cloud. Further, they are similar in that both have physical infrastructure and Amazon could scale SFLY’s distribution centers and run them more efficiently. With that said, we thought a sale of the company was a longer-term exit strategy for CEO Jeff Housenbold, so we are surprised by the timing.”
“Based on yesterday’s closing price of $43.51, SFLY was trading at 7.3x the consensus 2015 EV/EBITDA vs. a median multiple of 10x for the group of e-commerce stocks. At 10x 2015 consensus EBITDA, SFLY shares would be worth $60 per share, or a 38% premium to yesterday’s price. However, we think the stock is worth $58 per share based on a DCF valuation. A typical 20% premium would value the stock in an acquisition at $70 per share, or 12x 2015 consensus EV/EBITDA. The true value in an acquisition may lie somewhere between $60-$70 per share. The most recent public e-commerce acquisition is OpenTable (OPEN-$103.18:NR), which is in the process of being acquired by Priceline (PCLN-$1,239.00:NR) for 21x 2015 EV/EBITDA, after OPEN put themselves up for sale using Qatalyst. That’s a ~47% premium to the value of the shares prior to the announcement of the acquisition. An SEC filing confirmed seven interested parties in addition to Priceline. We believe it is unlikely that SFLY would fetch the same multiple as OPEN,” he added.