Pair Trade Opportunity: BMO Upgrades Nielsen, Downgrades TubeMogul
In a couple of reports published Monday, BMO Capital Markets analysts Daniel Salmon, Nirav Modi and Ygal Arounian look into two media and internet stocks and provide an idea for a pair trade.
Nielsen ($53.00 Price Target)
The analysts like Nielsen on account of its revenue growth acceleration potential, which should, in turn, support multiple expansion. They anticipate constant-currency revenue growth of 5.4 percent for 2016, and 5.6 percent for 2017 – both up from a previous estimate of 5 percent.
The experts note that they have received “more encouraging comments from industry contacts highlighting both recent innovations like DAR and DCR, and that these products are becoming increasingly important elements of major contract renewals.”
From a qualitative standpoint, the broadly held view seems to be that Nielsen is “better addressing the needs of a changing media landscape. This was not the case as recently as 6-12 months ago, but as more customers begin to use the new products, the tone is changing,” the note explains.
The firm concludes, “the combination of accelerating revenue growth, consistent margin expansion, and judicious returns of capital (after tuck-in acquisitions) creates a compelling opportunity for value investors seeking consistent (and growing) dividends.”
TubeMogul ($15.00 Price Target)
TubeMogul is reporting its second quarter financial results on Monday evening. While BMO expects a strong quarter, even above estimates, it remains cautious as the competitive environment continues to change.
Many investors will be focusing on Google’s decision to remove YouTube inventory from the DoubleClick Ad Exchange, the analysts believe. However, they will be interested on what they consider a bigger competitive issue: the entrance of privately held Appnexus into the video buying marketplace.
Appnexus, possibly the largest independent ad tech platform in terms of total dollar flow, recently announced the launch of its new video offering, and feedback within the industry has been positive.
Moreover, the experts note, “Appnexus is well-known for operating at a low take-rate and is the only player in the broader ecosystem that has openly discussed single-digit rates to our knowledge. As importantly, Appnexus’s deep embedding at the agency holding companies (particularly WPP, which owns 15% of Appnexus) gives it the opportunity to quickly “turn on” video revenues through this installed base.”
So, while Salmon and his team “fully expect TubeMogul to continue innovating and succeeding,” the aforementioned factors lead them to a more cautious position.
Latest Ratings for TUBE
|Oct 2016||B. Riley||Initiates Coverage on||Buy|
|Aug 2016||First Analysis||Downgrades||Overweight||Equal-Weight|
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