SOHU: Good Value, Great Growth

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 related to online ad spending and China's macro economy in 2009 still remains. The company is going to spin-off part of its gaming division via an ADS offering.

We maintain our Buy rating on the shares of SOHU with a 6-month target price of $64.00. This is based on a P/E multiple of 11.6x our estimate of 2009 EPS of $5.50. Our price target of $64.00 is very reasonable but still does not reflect the ROE of Sohu.com, which could lead to further upside in the valuation.