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j2 Global Communications (JCOM)

JCOM

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We are upgrading our recommendation on j2 Global Communications (JCOM) to Outperform based on its excellent financial results for the second quarter of 2011, which significantly beat the Zacks Consensus Estimates. We believe the company's strong financial position and diversified product pipeline, coupled with the long-term growth prospects of outsourced value-added messaging services, will drive its earnings higher in the near future.

The Subscriber Usage revenue continues to beat market expectations. This is an important parameter as credit-sensitive customers constitute a majority of j2 Global's sales. Exploration of new opportunities for both digital facsimile and voice services, through new acquisitions, facilitated the company to solidify its market position.

Ongoing macro-economic headwinds may actually help j2 Global since business enterprises are more inclined to use digital facsimile in order to reduce cost structure. Our target price of $36 is based on a 15.3x our fiscal 2011 earnings estimate, approaching the industry average. This is in-line with our Outperform recommendation.

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