The Zacks Consensus Estimates for CoStar Group, Inc. (CSGP) have fallen meaningfully lower for both 2013 and 2014 after the company reported its Q4 results on February 27. It is a Zacks Rank #5 (Strong Sell).
In addition to declining earnings estimates, shares still trade at a premium valuation at 59x forward earnings. This doesn't bode well for shares over the next several weeks.
CoStar Group provides information, analytics and marketing services for the commercial real estate market.
Falling Estimates
CoStar reported fourth quarter results on February 27. Adjusted earnings per share came in at 36 cents, beating the Zacks Consensus Estimate by a penny. Revenue rose 51% to $100.1 million, but this was driven in large part by an acquisition.
Despite the small Q4 earnings beat, the Zacks Consensus Estimates for both 2013 and 2014 fell meaningfully lower, sending the stock to a Zacks Rank #5 (Strong Sell). The 2013 Zacks Consensus Estimate is now $1.71, down from $1.80 sixty days ago. And the 2014 consensus is now $2.28, down from $2.57 over the same period. You can see this sharp decline in the company's 'Price & Consensus' chart:
Premium Valuation
Despite the negative earnings momentum, shares of CoStar still trade at a frothy 59x 12-month forward earnings, which is a significant premium to the industry median of 17x. Its price to cash flow ratio of 68 is also well above the industry median of 13.
CoStar Group also carries a long-term 'Underperform' Zacks Recommendation.
The Bottom Line
With negative earnings momentum and premium valuation, investors may want to consider avoiding CoStar Group for now. However, there are other stocks within the IT Services industry that investors might want to check out. Unisys Corporation (UIS), for instance, carries a Zacks Rank of 1 (Strong Buy), and Acxiom Corp (ACXM) carries a Zacks Rank of 2 (Buy).
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.
***We are reissuing this article to correct a mistake. The original article, issued Tuesday, March 19, 2013, should no longer be relied upon.***
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