Baird Initiates j2 Global With An Outperform Rating, Cites Strong Free Cash Flow

Both the primary segments of J2 Global Inc JCOM are expected to generate strong FCF going ahead, Baird’s William V. Power said in a report. He initiating coverage of the company with an Outperform rating and a price target of $83.

J2 Global is a holding company and has two main segments, namely cloud services and digital media, both of which are expected to generate solid cash flows.

“While acknowledging the fax exposure and acquisitive nature that have created concerns among some in the past, we are positive on the strong free cash flow, consistent margin expansion, digital media opportunities, M&A discipline and attractive valuation,” analyst Power commented.

Positives

Power enumerated J2 Global’s positives as:

• Solid FCF: The analyst expects the company’s FCF to grow from $223.2 million in 2015 to $259.0 million in 2016 and $319.3 million in 2017.
• Consistent Margin Expansion: J2 Global achieved EBITDA margin expansion from 43.7 percent in 2014 to 46.2 percent in 2015, driven by M&A synergies. The company’s EBITDA margin is expected to improve to 47.0 percent in 2016 and 47.8 percent in 2017.
• Digital Media Growth: “We forecast digital media growth of 31.0% this year and 16.3% in 2017, with solid organic growth accentuated by acquisitions. Performance marketing and Ookla are two key opportunities,” Power wrote.
• Disciplined Acquisition Strategy: J2 Global has a proven track record of accretive, tuck-in acquisitions, and this is likely to continue.

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