Post-Selloff, Kenexa Shares a Hold

We believe that Kenexa Corporation (KNXA - Analyst Report) is struggling from competitive pressures, its integration of BrassRing, and a weakening market for talent acquisition. Although the company met guidance, we have significantly cut EPS estimates for Q1, with the company expecting to make up the EPS shortfall throughout the remainder of 2008.

After a 40% sell-off following Kenexa’s Q3 earnings release, the stock price has begun to recover, boosted by its stock buyback. The company is trading at 13.1x our current year 2008 EPS estimates of $1.41, a discount to all but one of its competitors. Although the price decline may have been overly drastic, we are concerned that disappointments are not over given questions about the economy and job market.

We do believe that KNXA shares should trade at a discount to better positioned companies, such as Taleo Corporation (TLEO - Snapshot Report), which we view as the industry leader. We, therefore, maintain our six-month price target of $20, which results in a P/E of 14.2x 2008 estimates, still a discount to the peer group. On a P/S basis, KNXA is trading at 2.1x 2008 revenue, in-line with the industry.

Read the full analyst report on KNXA