Pluses for eBay Already Reflected

eBay, Inc.'s (EBAY - Analyst Report) solid growth is being driven by the strength of its business model, as well as PayPal and international opportunities. However, we think these positives are already reflected in EBAY shares.

What's more, we are concerned with slowing consumer discretionary spending, increasing competition, and the potential for its profit margins to contract further. As a result, we maintain our Hold rating and expect EBAY shares to perform in line with the overall market.

eBay's business model, which requires no inventory and little capital investment, continues to produce hefty profit margins and substantial free cash flow. These positive attributes helped the company deliver solid results in the first quarter. However, we would not be too excited about the quarterly EPS results. We do not believe the results were as strong as the headline number would suggest. eBay's earnings per share benefited from a lower tax rate, share repurchases, and foreign exchange gains.

eBay is scheduled to report second-quarter results on July 16. We are forecasting sales of $2.16 billion, up 18 percent year-over-year, and EPS of 41 cents, up 20 percent year-over-year.

eBay shares are currently trading at 15.5x our 2008 pro forma EPS estimate. We think this valuation is reasonable in light of the company's solid growth profile. Our six-month target price is $30, which is about 17x our 2008 EPS estimate.

Read the full analyst report on EBAY