Focus Media Prospects Strong

Focus Media Holding, Ltd. (FMCN) announced strong growth in revenue and earnings for the second quarter. These results exceeded market expectations, despite the Sichuang Earthquake. In addition, the company’s blended gross margin improved sequentially. Focus Media expects to maintain its growth even after the Beijing Olympic Games.

Focus Media is well positioned to leverage the great growth opportunity of the out-of-home and Internet advertising market in China. The company’s smart business model allows its core business to face limited competition. It is believed that it has more than 90 percent market share in the commercial building network and frame poster network in China.

The company’s revenue from online brand advertising is second only to Sina.com in China. However, we think its current stock price doesn’t reflect the company’s growth prospects. Therefore, we are maintaining Buy recommendation on the stock.

The stock is trading at 15.5x our 2008 EPS estimate, which is lower than the industry mean. The stock is also trading at 11.6x our 2009 EPS estimate, which is much lower than the industry mean. Using a P/E multiple of 14.2x our fiscal year 2009 earnings per share estimate of $2.47 yields a target price of $35, which we believe reflects the company’s growth prospects.

Read the full analyst report on FMCN

Read the full analyst report on FMCN