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Analyst Sees 21% Upside In ANGI HomeServices

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Analyst Sees 21% Upside In ANGI HomeServices
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Goldman Sachs sees Angie's List Inc (NASDAQ: ANGI)'s ANGI HomeServices as the best house on the block with a new addition. ANGI HomeServices, a product of the merger between Angie's List and IAC/InterActiveCorp (NASDAQ: IAC)'s HomeAdvisor made its Wall Street debut Oct. 2.

As such, Goldman Sachs assumed coverage of ANGI HomeServices with a Buy rating and a $14 price target, suggesting a 21 percent upside.

At time of writing, shares were up 2.94 percent at $11.89.

Analyst Christopher Merwin believes the deal establishes a clear leader in the $80 billion end market for home services ad spend. The analyst noted that the pro forma equity is currently trading at 21 times his 2018 EBITDA estimate of $272 million, despite his expectations for a three-year pro-forma CAGR of 66 percent.

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This, according to the analyst, reflected doubts of the market concerning the company's ability to hit its pro-forma guidance.

Goldman says the guidance is achievable through $75 million in identified synergies and 19-percent pro-forma top-line growth. The firm added that when the guidance is met, the stock could re-rate higher.

See also: Internet Stock Catalysts: What's Ahead, Who Will Benefit And Who's At Risk

The firm sees merger integration and the realization of 2018 guidance, increases in take rate and an inflection in the online shift as catalysts.

Specifically, the company can realize the $50 million–$75 million of cost savings from shared expenses to be realized in the first year. Additionally, the firm expects another $50 million–$100 million of revenue synergies from monetizing the Angie's List through HomeAdvisor's existing network of 164,000 SPs.

"With a superior matching algorithm and UI, we expect to see conversion improvements for Angie's List traffic that will be additive to revenue & EBITDA," the firm said.

On take rate, the firm says the company must keep bringing transactions onto its platform via its Instant Book product in order to improve HomeAdvisor's current below-average take rate of 4 percent. The platform, according to the firm, now accounts for only about 10 percent of total bookings.

At scale, the firm believes the combined company's take rate could improve close to three times, more in line with other local marketplace category leaders. The firm estimates that take rate increases alone can add an incremental $1 billion in revenues.

Additionally, the firm believes the online migration of home service professionals ad spend is accelerating. The firm sees this as providing an opportunity for the company with the most powerful network effects to capture disproportionate share.

Latest Ratings for ANGI

DateFirmActionFromTo
Oct 2018NomuraInitiates Coverage OnNeutral
Oct 2018Raymond JamesMaintainsOutperformOutperform
Sep 2018WedbushInitiates Coverage OnOutperform

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