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Analyst sees big gains for Web.com

by Mark Basch, Contributing Writer

Web.com Group Inc. has been doing a lot recently to get your attention.

Every time you watch a Jacksonville Jaguars game from EverBank Field, you can't help but see the big Web.com banner covering seats in the north end zone.

If that wasn't enough to catch your eye, the company in July announced a 10-year agreement to become the title sponsor for the PGA Tour's second-level golf tour, which is now known as the Web.com Tour.

Unfortunately, after a nice runup in the stock the past two years, the extra notoriety hasn't translated into more interest on Wall Street. However, one analyst says Jacksonville-based Web.com, which provides website development services for businesses, is poised for more gains over the next year.

"We believe the earnings Web.com is projected to post next year could set the stage for the stock rising, especially when cash flow is applied to reducing debt," BWS Financial Inc. analyst Hamed Khorsand said in a research report.

Khorsand has a "buy" rating on the stock and a $27 price target for the next 12 months.

"We would use the opportunity of the stock trading near $15 to build a position," he said.

As the company grew through acquisitions, Web.com's stock rose from a low of $3.25 in mid-2010 to a high of $19.72 earlier this year, but the stock has dropped back below $15 recently.

Khorsand said investor disappointment in the company's subscriber growth has hurt the stock.

"The actual number of net subscriber additions is expected to remain flat, which we consider a positive given the industry has been losing subscribers on a regular basis. However, it seems investors might have been getting used to sequential increases this year that become very difficult to continue in a declining subscriber count industry," he said.

"The market share gains Web.com has made are significant and the revenue per user Web.com is reporting affirms the free cash flow investment story," he said.

Web.com recently refinanced its debt, a move that will cut its interest expense by 20 percent, increasing cash flow, Khorsand said.

Web.com also will benefit from a recent agreement between VeriSign Inc. and the U.S. Department of Commerce on registration of Internet addresses with the ".com" extension. The agreement allows VeriSign to continue maintaining the ".com" registry for the next six years at a fixed cost of $7.85 a year for each address registered, with no price increases during those six years.

Web.com provides domain name registration services for its clients and pays VeriSign the $7.85 charge for each customer, paying a total of $70.6 million a year, Khorsand said. Web.com will benefit from VeriSign's new agreement that keeps that cost constant.

"The fixed cost gives Web.com an opportunity to expand profit margins through its various pricing campaigns without the risk of facing a price increase in the near future," he said.

Latitude 30 owner cancels public plan

A year ago, the owner of the Latitude 30 entertainment complex in Jacksonville announced plans to go public by merging with a publicly traded shell company called Blink Couture Inc. But Blink Couture said in a Securities and Exchange Commission filing last week that the deal has been called off.

Since Jacksonville-based Latitude Global Inc. announced its deal to merge into Blink Couture in December 2011, the company agreed in February to sell its two facilities in Jacksonville and Indianapolis to ERP Properties, a publicly traded real estate investment trust.

ERP paid $13.7 million to buy the two properties and is leasing them back to Latitude Global, according to an SEC filing. ERP also agreed to finance $11.5 million in construction for the two facilities.

Latitude Global announced Thursday that it has engaged a New York investment banking firm, John Thomas Financial, to assist the company in finding more capital to fund growth.

Blink Couture, which has no other operating business, said in Tuesday's SEC filing that its deal with Latitude Global was terminated by mutual agreement. Latitude Global will reimburse Blink Couture for $47,500 in merger-related costs.

Convergys hiring more workers

Convergys Corp. last week announced that it is trying to fill 2,500 full-time jobs through mid-January, including 60 in Jacksonville.

The Cincinnati-based company, which provides outsourced customer service functions for businesses, said the 2,500 nationwide jobs include 250 work-at-home positions.

Convergys currently has more than 1,100 employees in Jacksonville and 75,000 overall.

The company has gone through a lot of changes in the past couple of years and last month held its first "analyst day" meeting since 2009.

"The company's management team and business leaders did provide a comprehensive review of the business, but we believe investors could have been looking for more ambitious growth targets and/or a more aggressive plan for capital deployment," Robert W. Baird analyst David Koning said in a research report after the meeting.

Koning said Convergys projected revenue growth of 3 percent to 4 percent a year and annual earnings per share growth of 10 percent through 2015.

TV stations look back on big political season

The owners of some Jacksonville television stations were able to brag at a recent investor conference for media companies about how profitable the recent elections were for them.

Gannett Co. Inc. said at the conference hosted by UBS that it was a record year with a total of $150 million in political advertising revenue, according to a company news release.

Gannett owns 23 television stations, including WTLV TV-12 and WJXX TV-25 in Jacksonville.

The Washington Post Co., which owns WJXT TV-4 and five other stations, also benefited from those nonstop political ads. CEO Donald Graham said the company's television stations increased revenue by 23 percent and increased operating income by 69 percent in the first nine months of this year.

"These results will stand comparison to anyone's, and the six stations' news and competitive positions range from reasonably strong to unbelievable," Graham told the conference, according to a transcript posted by the company. But there is a downside.

"Obviously, profits will be down next year, unless someone calls an election," he said.

FIS buys shares from largest stockholder

As part of an ongoing stock repurchase plan, Fidelity National Information Services Inc. last week announced it spent $200 million to buy shares from its largest stockholder.

The company, which calls itself FIS, said it bought 5.7 million shares from Warburg Pincus Private Equity IX L.P.

Warburg still controls 32.8 million FIS shares, representing 11.2 percent of all shares outstanding, according to an SEC filing.

FIS said it has repurchased $450 million of its stock this year and is authorized to spend another $650 million to buy back more shares.

Public companies buy back their stock in order to reduce the number of shares outstanding in the market, making the remaining shares more valuable.

Koning of Robert W. Baird, who also follows FIS, said the deal to buy stock from Warburg will add 3 cents to 4 cents of annual earnings per share.

"The company has been a bit more active in the repurchase market than we initially expected, which we consider to be encouraging," Koning said in a research note.

FIS also announced last week that Executive Vice President and Chief Financial Officer Michael Hayford plans to retire in 2013.

Hayford was president of Metavante Technologies Inc. and joined FIS when the two companies merged in 2009.

FIS said it will search internally and externally for a new CFO and that Hayford will stay on until a successor is found.

Fund reduces Body Central stake

One of Body Central Corp.'s two largest shareholders reduced its stake in the company, according to an SEC filing last week.

Salt Lake City-based Wasatch Advisors Inc. now owns 809,488 shares, or 4.96 percent of all shares outstanding. Wasatch listed 1.03 million shares, or 6.4 percent, on Body Central's proxy statement in March.

The only remaining entity owning more than 5 percent of Jacksonville-based Body Central is Fidelity Management & Research Co., which listed 2.4 million shares, or 14.8 percent, on the proxy. That Fidelity is the Boston-based mutual fund company and is not related to FIS or the other Jacksonville-based company with Fidelity in its name, Fidelity National Financial Inc.

mbasch@baileypub.com

(904) 356-2466

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