NEW YORK (TheStreet) -- Chegg (CHGG) - Get Report stock is soaring 17.04% to $7.90 in morning market trading Tuesday after the company said that Ingram Content Group will be taking over the textbook rental business as of May 1. The announcement was made after yesterday's market close.
Chegg plans to stop managing the physical books that it rented out to students, and to completely hand off that part of the business to the Ingram Content Group, a big book distributor, by the end of next year, the New York Times reported.
Chegg's shares have fallen about 30% since its initial public offering in November 2013, the Times said, adding that the move is driven by the desire to relieve the company's stock of its biggest pressure: physical textbooks becoming obsolete.
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Following Chegg's announcement to transition from a print to digital business, BMO Capital Markets analysts upgraded their rating to "outperform" from "market perform," and increased its price target to $10 from $8.
Chegg reported a loss in earnings of 24 cents per share in 2014, versus a loss of 70 cents per share in 2013. Revenue increased to $306 million in 2014 from $256 million in 2013.
BMO analysts lowered their earnings estimates to a loss of 8 cents per share from a gain of 28 cents per share in 2015, and to 43 cents per share from 57 cents per share in 2016.
The firm expects revenue of $360 million and $405 million in fiscal years 2015 and 2016, respectively.
"While we are reducing our adjusted earnings estimates, we believe digital revenue growth and gross margin expansion will be better metrics to track the company's progress," BMO said.
Separately, TheStreet Ratings team rates CHEGG INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHEGG INC (CHGG) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we find that net income has been generally deteriorating over time."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 5.3%. Since the same quarter one year prior, revenues rose by 32.4%. 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.
- Net operating cash flow has improved to $45.40 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
- CHGG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.92 is somewhat weak and could be cause for future problems.
- In its most recent trading session, CHGG has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- 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 Diversified Consumer Services industry. The net income has decreased by 10.9% when compared to the same quarter one year ago, dropping from -$29.26 million to -$32.44 million.
- You can view the full analysis from the report here: CHGG Ratings Report