Why LinkedIn (LNKD) Was Upgraded Today

Story updated at 10:05 a.m. to reflect market activity.

NEW YORK (TheStreet) -- LinkedIn (LNKD) was upgraded to "outperform" from "sector perform" by RBC Capital Wednesday.

LinkedIn gained 2.3% to $214.57 in morning trading.

The analyst firm raised its price target for the social network company to $250 from $225. Analyst Mark Mahaney said the upgrade is a value call as the company's stock fell 13%over the past six months.

"Over the past 6 months LNKD shares have traded down 13% vs. a 12% increase in the S&P 500. Drag Issues have included: 1) overly aggressive Street estimates, 2) a heavier than expected investment outlook for '14, 3) a greater-than-expected slowdown in Talent Solutions revenue growth, and 4) uncertainty over Marketing Solutions format changes," Mahaney wrote.

"The first issue has been addressed - Street '14 EBITDA estimates have been reduced 11% since the beginning of this year. And we believe LNKD's '14 investments - salesforce buildouts, product and market expansions, and acquisitions - are coming from a position of strength against large TAMs. Our very recent proprietary work helps address Drag Issues 3 & 4."

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Seperately, TheStreet Ratings team rates LINKEDIN CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate LINKEDIN CORP (LNKD) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and disappointing return on equity."

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

  • 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 67.1% when compared to the same quarter one year ago, falling from $11.51 million to $3.78 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, LINKEDIN CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • The gross profit margin for LINKEDIN CORP is currently very high, coming in at 87.06%. Regardless of LNKD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LNKD's net profit margin of 0.84% is significantly lower than the industry average.
  • LINKEDIN CORP 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. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LINKEDIN CORP increased its bottom line by earning $0.23 versus $0.19 in the prior year. This year, the market expects an improvement in earnings ($1.51 versus $0.23).
  • You can view the full analysis from the report here: LNKD Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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