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TheStreet Open House

Will AOL (AOL) Stock Be Helped By New Offering of Convertible Notes?

NEW YORK (TheStreet) -- AOL Inc.  (AOL) announced that it intends to offer $300 million aggregate principal amount of Convertible Senior Notes due 2019 in a private offering.

AOL expects to use the net proceeds from the offering of the notes to fund the net cost of convertible note hedge transactions and warrant transactions with the hedge counterparties.

AOL also intends to use up to $50 million of the net proceeds of the offering to repurchase shares of its common stock from purchasers of the notes in privately negotiated transactions.

Must Read: Warren Buffett’s 25 Favorite Stocks

 

These repurchases are part of AOL’s previously announced $150 million share repurchase program.

In addition, following the offering AOL may repurchase additional shares of its common stock pursuant to its stock repurchase program.

AOL expects to use the remainder of the net proceeds for general corporate purposes, which may include share repurchases, acquisitions or other strategic transactions and working capital.

Shares of AOL closed down -1.72% to $42.33 yesterday.

TheStreet Ratings team rates AOL INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AOL INC (AOL) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 11.5%. Since the same quarter one year prior, revenues slightly increased by 8.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although AOL's debt-to-equity ratio of 0.06 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.22, which illustrates the ability to avoid short-term cash problems.
  • AOL INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, AOL INC reported lower earnings of $1.12 versus $11.02 in the prior year. This year, the market expects an improvement in earnings ($2.08 versus $1.12).
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 64.1% when compared to the same quarter one year ago, falling from $25.90 million to $9.30 million.
  • You can view the full analysis from the report here: AOL Ratings Report

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