On Wednesday, Jefferies made a notable change to its rating for LegalZoom.com Inc (NASDAQ:LZ) stock, upgrading the online legal technology from Hold to Buy. Alongside the upgrade, the firm has established a new price target of $8.00 for the company's shares.
The decision to raise the rating comes after observing a significant decline in the stock's value, which has dropped 41% year to date. Jefferies points out that, even with a potential future reduction of $77 million in FY25 estimates, the enterprise value to sales (EV/S) ratio would remain low at only 1.6 times, which is still the second-lowest in their software coverage.
LegalZoom's position as a market leader in online legal services is highlighted, with a noted 20% EBITDA margin. Jefferies also anticipates a revenue growth re-acceleration to mid-to-high single digits percentage in 2025, up from 3% in 2024. This forecasted growth is seen as a positive sign for the company's financial health.
Additionally, the firm acknowledges the impact of the new CEO at LegalZoom, who has set new benchmarks and is expected to drive a more predictable performance with a higher mix of subscription services. The price target of $8.00 is based on an EV/S multiple that remains subdued at 1.8 times, despite the overall market conditions.
In other recent news, LegalZoom has been the subject of significant developments. The company saw a CEO change with Jeff Stibel taking over from Dan Wernikoff. LegalZoom also revised its 2024 revenue guidance downward to $675-$685 million. In Q1 2024, the company reported a 5% overall revenue increase year-over-year to $174 million, driven by a 10% growth in subscription revenue.
The board has expanded its stock repurchase program, approving an additional $75 million, raising the total authorized amount to $175 million. JMP Securities and JPMorgan have both downgraded LegalZoom's stock, citing various reasons including increased competition and operational concerns.
Despite these changes, analysts from JMP Securities and Barclays Capital Inc. have given LegalZoom an Outperform and Overweight rating respectively. These are recent developments in the company's operations and strategy.
InvestingPro Insights
InvestingPro data reveals that LegalZoom.com Inc (NASDAQ:LZ) holds a market capitalization of $1.26 billion, with a P/E ratio of 59.64, reflecting investor expectations for future earnings. The company's revenue for the last twelve months as of Q1 2024 stands at $669.0M, with a notable gross profit margin of 62.92%, indicating a strong ability to retain earnings after the cost of goods sold. Despite recent price volatility, LegalZoom's stock is trading at 42.9% of its 52-week high, suggesting potential room for recovery.
Among the InvestingPro Tips, it's noteworthy that management's aggressive share buybacks and the company's solid cash position relative to debt are seen as positive indicators of confidence and financial stability. Furthermore, the expectation for net income growth this year aligns with Jefferies' forecast for revenue growth re-acceleration. With the stock having fallen significantly over the past year, the current price level may present an attractive entry point for investors.
For those considering an investment in LegalZoom, there are additional InvestingPro Tips available, which could provide deeper insights into the company's valuation and future prospects. Readers can access these tips and more detailed analytics by using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are a total of 18 InvestingPro Tips available for LegalZoom, which can be found at: https://www.investing.com/pro/LZ
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