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EarthLink: Despite Poor Stock Performance, Analysts Bullish

By Josh Long
December 09, 2011 - News

Financial analysts who cover EarthLink Inc. seem to agree that the telecommunications provider is worth investing in.

Five financial services firms rate the stock either a "strong buy" or a "buy," according to Zacks Investment Research data. The downside for investors is that EarthLink's stock price has been steadily declining over the last year and is trading near a 52-week low that was reached on Nov. 25 ($5.97). EarthLink's stock performance is only better than 20 percent of the companies covered by TheStreet, a financial media company.

Scott Kessler, an equities analyst with S&P Capital IQ, thinks the company is undervalued and has rated the stock a "strong buy."

"We view the company as well positioned and notably undervalued based on a variety of more traditional and less traditional metrics," Kessler said in a statement Nov. 28. "While we see a number of investment risks, we think EarthLink is a compelling value and note its recent indicated dividend yield of 3.4 percent."

An Old Image

Atlanta-based EarthLink may be best known as a dial-up Internet service provider for Americans. That's the old EarthLink: The company has transformed into a business-oriented telecommunications provider by acquiring such companies as ITC^DeltaCom and One Communications Corp. Business revenues were responsible for 74 percent of third-quarter sales, according to D.A. Davidson & Co.

EarthLink has gone through significant changes over the last four years under its chairman and CEO Rolla Huff. Since Huff took the helm in 2007, the company has streamlined operations, slashed its workforce by more than 70 percent, cut customer acquisition costs and reduced investments and expenses connected to various ventures.

The stock price doesn't necessarily reflect the new business-focused EarthLink.

"ELNK is making progress on its transformation, yet continues to trade like a dying consumer ISP," D.A. Davidson & Co. analyst Donna Jaegers wrote in a note Oct. 28 following EarthLink's third-quarter earnings. "We think the stock could move up to the low teens as they continue to execute."

Jaegers has a 12- to 18-month price target of $14 on the stock, although it's currently worth less than half of that; EarthLink's stock price closed at $6.03 on Thursday.

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