Sohu.com a Buy Up to $70

Sohu.com, Inc. (SOHU - Analyst Report) is the second-largest internet portal and one of the most well-known online brands in China.

Sohu’s pipeline for its new online games remains strong and is expected to drive meaningful growth in late 2009 and 2010. We are encouraged by the company’s growing cash balance as well as its debt free balance sheet. We believe that the current stock price does not fully reflect the company’s intrinsic value. Concerns relating to online ad spend and China’s macro economy in 2009 still remains. As such, we maintain our Buy rating on the shares of SOHU.

Based on our estimate for fiscal 2009 EPS, the stock is trading at a P/E multiple of 9.7x. The stock is also trading at 10.1X our N4Q EPS estimate, which is below the industry mean and median. The PEG ratio of 0.28 is also well below the group average. Based on a P/E multiple of 15.0x (our estimate of the N4Q earnings) the price target of $70 is very reasonable, but still does not reflect the ROE [return on equity] of Sohu.com, which could lead to further upside in the valuation.

Priyanka Poddar contributed to the report.

Read the full analyst report on SOHU