Web.com Group Upgraded By B. Riley; Firm Says Execution Issues Fixed, Profitable Growth Coming

In separate reports published Thursday, B. Riley analyst Sameet Sinha upgraded the ratings on Web.com Group Inc WWWW from Neutral to Buy, while raising the price target from $20 to $30.

In the report B. Riley noted the following:

• Improving FCF dynamics yield 10% on 2016 estimates
• FCF should allow for debt repayment and buybacks – Expectations are for net debt or annualized AEBITDA to be reduced by 50 percent over 8 quarters
• Easier comps in the back half of this year, due to missteps in 2H14 – Expectations are for ARPU growth in 4Q15
• Optionality in new partnerships and gTLD

Analyst Sameet Sinha believes that the execution and competitive issues that were witnessed in the back half of 2014 “have been addressed” and that management is “working on various product changes and partnerships to drive profitable growth.” Sinha expects this to lead to “significant FCF generation,” which the company can use to reduce its debt levels in the next two years. This, in turn, would allow for share repurchases and/or accretive acquisitions.

“Comps start to ease in 2H15 and if new initiatives gain traction in 2016, we will see upside to estimates,” the report mentioned. The EPS estimates for 2015 and 2016 have been raised from $2.39 to $2.43 and from $2.70 to $2.82, respectively, mostly to reflect changes in interest expense and D&A.