Visual Sciences, Inc. upgraded on lawsuit settlement
Shares of Visual Sciences, Inc. (Nasdaq: VSCN) are edging higher today after Avondale Partners upgraded the provider of web analytics to a “market outperform” rating from “market perform.” The action was based on the company’s announcement Monday that it settled a lawsuit surrounding patent infringements with NetRatings.
Under the terms of the settlement, Visual Sciences said it agreed to pay NetRatings $9.0 million, of which $2.0 million is due upon execution of the settlement and patent license agreement. The company said the remaining $7.0 million will be paid in quarterly installments of $0.5 million beginning March 31, 2008.
“[The settlement] eliminates an overhang with the stock and will mean less expense going forward,” wrote Avondale Partners analyst Sean Jackson in a research note.
According to Jackson, the litigation has cost Visual Sciences up to $1 million per quarter since it began in February of last year. The analyst said he expects the lawsuit settlement will be accounted for as a net decrease in expenses going forward (even on a GAAP basis).
On account of reduced expenses associated with the lawsuit settlement, Jackson is raising his estimates for fiscal year 2007 and 2008. For the current year, Jackson is raising his earnings estimate to $0.62 from $0.58, while he is raising his earnings estimate for 2008 to $0.84 from $0.71. Fourteen analysts surveyed by Thomson Financial were on average expecting earnings of $0.57 and $0.76 for 2007 and 2008, respectively.
In addition, there is also a contingent settlement if there is a change in control, which according to Jackson could very well happen in the near term, as the company disclosed in July that it hired Goldman Sachs to evaluate strategic offers.
Buyout speculation is a potential catalyst for the stock, according to Jackson. The analyst said a bidding war could erupt as interest has come from multiple parties from multiple industries. Jackson says another potential catalyst going forward is management’s guidance revision, which Jackson anticipates will be higher given the company’s expected decline in expenditures on account of its settlement.
Visual Sciences currently trades at 20.2 times Jackson’s 2008 estimate of $0.84, which according to Jackson is a premium when compared to the company’s peer group’s multiple of 16 times 2008 earnings. However, Jackson said the buyout speculation justifies it.
Shares of Visual Sciences climbed $0.41, or 2.41%, to $17.40 in mid-day trading.
