Shutterfly's Q4 On Track For Solid Performance; Aegis Capital Initiates At Buy

Victor Anthony of Aegis Capital has launched coverage of Shutterfly, Inc. SFLY shares with a Buy rating and $62 price target, saying the company’s competitive moat would help consistently deliver margin expansion, high-quality earnings and free cash flow.

Aegis' Initiation

Redwood City, California-based Shutterfly is the leading player of providing personalized consumer social expression products in the United States, in a market that is estimated to be over $30 billion, with an estimated 10–15 percent online.

Anthony believes Shutterfly, with 75 percent customer retention rate, has the largest share of the online market with an estimated 25–30 percent.

“The Enterprise business continues to grow at a healthy pace and improving margins in this segment should enhance free cash flow,” Anthony wrote in a note.

Competition In The Space?

Importantly, Anthony said there is no near-term threat for Shutterfly from Amazon.com, Inc. AMZN's Amazon Prints.

“We have yet to see Amazon market Amazon Prints outside of the Amazon website in a meaningful way, and certainly not in Google search. And even on the core Amazon website, less prominence has been given to Prints,” Anthony highlighted.

Anthony expects Shutterfly to exceed consensus estimates for the fourth quarter. The analyst also estimates the company expanding its adj. EBITDA margins by 109bps in 2016 and by 133bps in 2017 on strong top-line growth and gross margin expansion at both the core Shutterfly brand and business solutions.

Anthony’s $62 price target implies an upside of 22 percent over November 29 close. Shares were recently seen up 0.98 percent at $51.17.