We reiterate our Sell rating on shares of LoopNet, Inc. (LOOP) following the release of Q1 financial results. Although the company owns the leading online commercial real estate marketplace, we believe that a challenging near-term operating environment will curtail share price appreciation. Continuing macroeconomic challenges will likely put stress on the commercial real estate sector, in our opinion, as slower economic growth combined with tight access to debt capital may limit transaction activity.
Given our outlook for a slowing rate of revenue growth and relatively flat earnings growth over the next two years, we believe that a lower multiple is appropriate at this time. Shares of LOOP currently trade at 26.1x and 22.5x our 2008 and 2009 earnings per share estimates, respectively. Excluding the estimated $67 million in cash currently on the balance sheet, the shares are trading at 22.5x our 2008 EPS estimate and 19.4x our 2009 estimate.
Given these uncertainties, we recommend avoiding shares of LOOP at current levels. While we consider the company to be the dominate force in the online commercial real estate market, we do not see a near-term catalyst that would justify a higher share price at this time.
We note that the earnings guidance maintained by the company for the full year 2008 was below the current Street consensus. The earnings guidance was unchanged from management's previous guidance, despite the fact that the company repurchased more than 9% of the company's outstanding common stock during the first quarter. Our price target of $11 per share reflects a multiple of approximately 16x our 2009 earnings per share estimate, plus cash on the balance sheet.
Read the full analyst report on LOOP.
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