Tuesday, KeyBanc Capital upgraded Kenexa Corp. (KNXA) shares to Buy from Hold with a price target of $11. The brokerage increased its 2009 EPS estimate to $0.61 on revenue of $151.0 million from $0.59 on revenue of $147.8 million, and its 2010 estimate to $0.79 on revenue of $161.9 million from $0.72 on revenue of $154.9 million.
Analyst Steven Koenig upgraded the stock to Buy and established a 12-month price target of $11, about 40% above May 11 closing price. KNXA reported first quarter results in line with consensus expectations. More significantly, deferred revenue was up sequentially by about $3 million in a very challenging economic environment.
The analyst believes this increase reflected strong sales of applicant tracking, or ATS, solutions in multi-element deals including consulting and content, and he expects the company to see benefits to its subscription line by the third quarter and beyond.
The analyst sees room for a recovery in KNXA's EV/ revenue multiple, which appears cyclically depressed, as sequential revenue stability emerges later in 2009 and costs remain controlled.
Although the analyst is not modeling a robust recovery for KNXA's recruitment process outsourcing, or RPO, business, he thinks non-RPO consulting and content sales could rebound as a recovery takes root, possibly providing top-line upside.
The analyst increased estimates to reflect better subscription revenue on the strength of KNXA's solution sales in ATS and (secondarily) performance management.
Currently, KNXA is up $1.54 or 19.62% and trading at $9.39.
For comments and feedback: editorial@rttnews.com