Benchmark's Kurnos Sees 'Downside Mostly Priced' Into eBay

• eBay Inc EBAY shares are down 14 percent in the last three months, and are trading close to the low end of their 52-week range of $23.23 - $66.73.
• Benchmark's Daniel Kurnos maintained a Buy rating on the company, while reducing the price target to $28.
• Street expectations for eBay’s revenue growth appear low, while some positive catalysts remain for the company’s shares, Kurnos noted.

eBay is scheduled to report its 3Q15 results on October 21. The company’s shares have declined over the past few months, mostly due to weak data from ChannelAdvisor, which cited decelerating SSS growth trends through September.

“While we acknowledge that ChannelAdvisor data has been relatively useful directionally, the absolute numerical comparison has shown little positive correlation historically. Furthermore, we had warned pre-spin that eBay would likely struggle out of the gate, having to deal with ongoing search and account issues,” analyst Daniel Kurnos pointed out.

eBay is likely to record a 3 percent y/y revenue decline for 3Q and a 2 percent decline for 2015. These estimates are marginally better than what the Street’s expectations.

Kurnos expects eBay’s revenue growth to rebound to 5percent in 2016, backed by a similar recovery in GMV growth.

“We note that, even on a standalone basis, eBay will likely generate nearly $4.5 billion in free cash flow between 2015 and 2016, or ~$3.75 per share, with our assumption of $150 million per quarter in buybacks leaving room for an accelerated program or possible alternative return strategy,” the analyst wrote.

Although eBay’s valuation is not as compelling as was anticipated prior to the PayPal spin, Kurnos cited main reasons why the company’s shares may offer “intriguing value” at the current levels:

1. Revenue expectations for 3Q15 and the holiday period are conservative
2. An enhanced capital return program or a possible strategic combination could act as positive catalysts for the shares.