Meredith's Guidance May Have Received A Boost From Time Takeover Rumors

Meredith Corporation (NYSE: MDP) preannounced its fiscal third-quarter EPS more than 10 percent higher than the midpoint of its prior guidance range of $0.75–$0.80. The company’s guidance may have been raised to offset the impact of the ongoing rumors around a takeover by Time Inc (NYSE: TIME), Benchmark’s Dan Kurnos said in a report.

Kurnos maintains a Hold rating on Meredith, while raising the price target from $64 to $65.

Upside Driven By Digital

The company indicated that the upside to its fiscal Q3 guidance was driven by an outperformance in digital. The analyst mentioned, however, that core Local may have also performed marginally better than was initially forecast.

The EPS estimates for FY 2017 and 2018 have been raised from $3.76 to $3.88 and from $3.19 to $3.46, respectively, to reflect the new guidance and “what we believe should be an enhanced margin profile going forward.”

Time Rumors Impact

The focus would likely be on the timing of the preannouncement, given the Time rumors. Kurnos believes, however, that the “only conclusion that can be officially drawn is further confirmation of Meredith's digital strategy driving an inflection point in National.”

The analyst further mentioned Meredith may have raised the guidance to “soften the blow from a failed bid or improve the share price for a stock and cash bid,” while pointing out that this was still “pure speculation.”

While Meredith's fundamental trends are likely to be positive in the longer term, the stock valuation warrants the Hold rating, Kurnos stated.

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