VCI - Valassis Communications - still trading at cheap valuations

Valassis Communications is finding that, in this economy, consumers are looking to cut coupons now more than ever. The company is well-positioned to provide advertisers, both through newspaper inserts and its new web site devoted to providing on-line deals, with the marketing plan to take advantage of the consumers who want to save money. Valassis beat on estimates by 19.44% in the fourth quarter and yet still trades with a P/E of only 8.48.

Full Analysis

Valassis Communications, Inc. (VCI) is a marketing services company that designs direct mail coupon books, emarketing plans and freestanding advertising inserts with coupons for placement in newspapers. VCI services over 15,000 advertisers.

The company, a Zacks #1 Rank (Strong Buy), recently started RedPlum.com, a web site that delivers coupons and other deals to over 100 million shoppers a week over the Internet.

In Feb 2007, the company acquired direct mail advertising company ADVO, which had 13,000 advertisers. This acquisition provided a big boost to VCI's 2,000 advertiser base.

On Feb 21, the company reported great fourth-quarter earnings which beat consensus estimates by 19.44%. Quarterly profit tripled. Net income rose to $20.6 million, or 43 cents per share, from $6.9 million, or 14 cents per share, in the year-ago period. Analysts' consensus estimates had called for 36 cents per share.

Revenue rose to $661.49 million from $286.37 million.

The company said that cost savings from its ADVO acquisition earlier in the year continued to pay off. Those savings totaled $26 million, better than the $18 million the company earlier forecast for the year.

In response to the earnings surprise, analysts' consensus estimates for the first quarter and full-year 2008 rose in the last 30 days. Consensus estimates rose on average of two cents to 21 cents per share from 19 cents per share.

For the year, three out of five covering analysts raised estimates on average of three cents to $1.29 from $1.26 per share. One analyst also lowered.

Valassis is still trading at cheap valuations. The company has a P/E of only 8.48, well below the industry average of 11.3. Its price-to-book is 2.47.

Content Courtesy: Zacks Investment Research

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