Analyst downplays Acxiom changes; sets $18 target price

story by Wesley Brown
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The sudden and surprise departure of Acxiom Corp’s top executives caught the market off guard as the company’s shares were slaughtered in Wednesday’s trading session, causing the Little Rock-based data marketer to lose nearly one-fifth of its market value.

Despite the frantic sell-off, one Wall Street analyst call Wednesday’s action’s a ‘kitchen sink” day and upgraded the company’s stock rating from “market perform” to “outperform. Bank of Montreal Capital Markets analyst Daniel Salmon also set the Little Rock data firm’s yearly a price target at $18 per share – a 33% jump from yesterday’s closing price.

“Concerns about ‘another shoe dropping’ drove the sell-off and were overdone, in our view,” Salmon wrote in an analyst note today (Mar. 30). “We believe yesterday was the ‘kitchen sink’ day and that there will be no subsequent news related to yesterday’s announcement, including and especially any accounting irregularities.”

The BMO analyst also noted in his commentary that Acxiom’s new CEO could come from inside the company, and there is some market speculation the company could be vulnerable to another takeover attempt without a chief executive guiding the firm

On Wednesday, Acxiom announced that CEO John Meyer had resigned and that fourth quarter results would be lower than expected, sending the company’s stock down as much as 28%. Acxiom’s shares closed on the previous day at $13.50 as nearly 10.5 million shares traded hands.

The Acxiom board has named director Jerry Gramaglia as an interim CEO to replace Meyer, who last day of work was Monday. The board also announced that CFO Christopher Wolf planned to resign in the second quarter to spend more time with his family in Florida.

Overall, Acxiom said it now expects fourth quarter earnings to be in the range of 18-22 cents a share, and revenue of $295 million-$299 million. The company will also take a charge of $50 million-$90 million in the period related to its international operations.

Wall Street analysts on average were expecting earnings of 24 cents per share on revenue of $303.2 million in the fourth quarter, according to Thomson Reuters. For 2011, Acxiom is now forecasting adjusted earnings of 65-69 cents a share, well below analysts’ view of 72 cents a share.

In his analyst report, Salmon said the key takeaway from yesterday’s actions is that Acxiom’s board aims to more aggressively build out its digital marketing offering to accelerate its evolution to a multichannel direct marketer.

“We believe this is a strong strategy move,” Salmon wrote, adding that “the company is seeking a ‘thought leader’ with extensive operating experience and a background in media and technology.”

The BMO analyst said the new CEO search will likely include internal candidates, including COO John Adams, Chief Sales Officer Shawn Donovan and current board member and former Razorfish CEO Clark Kokich as potential candidates.

“With that said, we believe an outside candidate is more likely as today’s moves marks, if not a shift in strategy, then at the very least a more aggressive move in the direction it was already headed,” Salmon wrote. “Candidates with a strong background in digital media and marketing will be the focus and the ability to leverage both Acxiom’s offline and online capabilities will be important.”

Salmon’s list of potential CEO candidates also includes Bill Wise of MediaBank, a privately held advertising analytics firm based in Chicago. Wise has been CEO of MediaBank for less than a year, joining the company in May after running Yahoo’s display advertising arm.

Salmon also said that even if the CEO search drags on or other “minor collateral damage” follows, Acxiom’s downside is limited to $12 a share because the company’s free cash flow is expected to grow by 42% and its balance sheet is under-leveraged.

Additionally, Salmon believes the company has substantial growth opportunities in China and that management will continue to use Acxiom’s extra cash to pay down debt and fund future acquisitions.

Concerning future moves by Acxiom, Salmon noted that there is speculation that the Arkansas firm could still go private, or possibly spin-off either its Information Management or background checking businesses.

“While not new,” Salmon said, noting ValueAct and Jeffrey Ubben’s much-publicized takeover attempt in 2007, “the exit of the CEO and CFO could mark an opportune time for a financial sponsor to acquire the company and install its own management team.”

Beside Salmon’s upbeat contrarian view, other Wall Street downgraded Acxiom’s stock in Thursday’s session. Piper Jaffray cut the data marketer’s stock price target from $15 to $12 a share.

"We remain on the sidelines given continued growth uncertainties in both U.S. and international segments. Absent a truly differentiated digital solution, we believe Acxiom remains challenged by competing database marketing and analytics companies as well in-house adoption of these solutions. In addition, CEO and CFO departures further cloud Acxiom growth prospects,” the Minneapolis-based research firm said in an analyst note.

Piper Jaffray recently initiated research on Acxiom in December, rating the company’s shares as neutral.

Meanwhile, Acxiom shares (NASDAQ: ACXM) were on the rise in mid-day trading Thursday at $14.23, up 73 cents, or 5.4%.