Website Pros (WSPI) is a leading provider of Web services for Small and Medium Businesses (SMBs). The company uses a factory approach that it can leverage over thousands of customers. The addition of Web.com provides excellent cross-selling opportunities as WSPI can offer its higher-end services to existing Web.com customers.
In spite of some top-line pressures during the first quarter, the integration of Web.com appears to be going well and improving operating leverage should drive profits. We therefore reiterate our Buy recommendation on WSPI with a $15.00 price target.
Website Pros has generally traded at a fairly attractive valuation, including its current multiple of 13.7x 2008 EPS and 1.8x 2008 sales, a discount to the industry mean. Although this may have been justified in the past, the company has successfully diversified its revenue stream away from Discover, removing one of the biggest risks to the stock.
Moreover, continued expansion of gross margin and increase in operating leverage will result in higher profitability. We therefore reiterate our Buy rating at a target price of $15.00, which represent a multiple of 23.4x our 2008 EPS estimate of $0.64 and 3.1x our 2008 revenue estimate of $4.79.
Read the full analyst report on WSPI.
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