Why AOL, Inc. (AOL) Jumped on Tuesday

NEW YORK (TheStreet) -- AOL, Inc. (AOL) jumped on Tuesday after Iiridian Asset Management filed an SEC document disclosing a 9.3% passive stake in the website publisher.

As Iridian notes via its website, it invests in mid-caps "undergoing significant corporate change." The specifics of this corporate change are unknown, though it is likely in relation to a previously announced spin-off of Patch to a new joint venture headed by Hale Global.

The New York-based business is due to report fourth-quarter results on Thursday. Analysts surveyed by Thomson Reuters expect quarterly net income of 60 cents a share on $655.81 in revenue. For the full year, consensus is for per-share earnings of $2.02 and $2.3 billion in revenue.

Ahead of earnings, Needham & Company revised its price target to $57 from $46. The investment firm expects fourth-quarter revenue and EPS of $647 million and 59 cents a share, respectively.

By late morning, shares had added 4.9% to $49.15.

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

"We rate AOL INC (AOL) a BUY. This is driven by several positive factors, 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 solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. 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:

  • Compared to its closing price of one year ago, AOL's share price has jumped by 52.74%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AOL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • AOL's revenue growth trails the industry average of 17.2%. Since the same quarter one year prior, revenues slightly increased by 5.6%. 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 0.04 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 1.15, 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. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, AOL INC increased its bottom line by earning $11.02 versus $0.14 in the prior year. For the next year, the market is expecting a contraction of 81.5% in earnings ($2.04 versus $11.02).

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