UPDATE: Jefferies Initiates EarthLink with Hold on Multiple Expansion Potential

In a report published Wednesday, Jefferies analyst Thomas Seitz initiated coverage on EarthLink

with a Hold rating and $6.00 price target. In the report, Seitz noted, “Via a string of acquisitions in 2010 and 2011, it has shifted its focus to enterprises by offering a differentiated mix of IT services; the enterprise growth is being funded by the profitable, yet declining, consumer ISP business. ELNK generates a significant amount of cash flows (5.8% FCF yield in 2013), leverage is limited (net debt to Adjusted EBITDA ratio of 1.2x), and the company has accumulated almost $500 million of NOLs that we expect will result in marginal cash taxes (if any) over our forecast period. ELNK shares sport a healthy 3.6% dividend yield, and the company has been returning modest amounts of capital to shareholders via share repurchases. Additionally, the shares are attractively valued – at 4.3x 2013 Adjusted EBITDA – we believe there is significant scope for multiple expansion as revenue and EBITDA trends turn around.” EarthLink closed on Tuesday at $5.65.