Earnings momentum for Valassis Communications Inc. (VCI) continues to advance following an earnings surprise of 23.3% in the third quarter and a raised earnings forecast for 2012. Moreover, this Zacks #2 Rank (Buy) media and marketing services company has a forward price-to-earnings (P/E) multiple of just 8.2 and a price-to-sales (P/S) ratio as low as 0.5, making it a promising value proposition for investors.

Third Quarter Highlights

On October 25, Valassis Communications posted third quarter earnings of 90 cents per share, eclipsing the Zacks Consensus Estimate of 73 cents and improving by 55.2% from a year ago. Quarterly earnings benefited from significant gains in the Free-standing Insert business, enduring operational improvements in Shared Mail, continued cost containment efforts and a reduced share count.

Net revenue dipped 0.9% year over year to $523.8 million, missing the Zacks Consensus Estimate of $525 million.

Despite the sales decline, the company's operating profits grew 20.3% to $58.9 million, driven by an 8.9% decline in selling, general and administrative (SG&A) expenses, offset by a 2.8% rise in amortization expenses. The decline in SG&A expenses mainly resulted from the restructuring and cost reduction measures adopted at the end of the previous quarter.

Encouraged by the third quarter performance and ongoing initiatives, the company raised its forecast for 2012 earnings per share to $3.23, compared with the earlier projection of $3.11. The company also raised its capital expenditure guidance to between $20 million and $22 million, against the previous guidance of $26 million.

Earnings Estimates Move Higher

In the last 7 days, the Zacks Consensus Estimate for 2012 increased 3.9% to $3.21, based on upward revisions by all 6 estimates. The Zacks Consensus Estimate for 2013 advanced 0.6% to $3.55 over the same timeframe. The estimates for 2012 and 2013 reflect annualized growth of 17.1% and 10.6%, respectively.

Value Justified

Shares of Valassis Communications have gained since the start of 2012, with a year-to-date return of 31.7%. Furthermore, the valuation for Valassis Communications looks attractive as the company's forward P/E of 8.2x stands significantly below the benchmark of 15.0x for a value stock. The P/S and P/B ratios also remain low at 0.5x and 2.2x, respectively, compared to the cut-off of 1.0 and 3.0 used to indicate value. The company's PEG ratio of 1.0 stands on par with the benchmark indicator.

Moreover, Valassis Communications has a 1-year ROE of 30.0%, very much higher than its peer group average of 6.2%, implying better reinvestment of earnings compared to peers. Long term earnings growth is projected at 8.5%, compared to the peer group average of 2.0%, making the stock attractive for value-seeking investors.

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Valassis Communications provides media and marketing services in the United States and Europe. Through its four business segments - Shared Mail, Neighborhood Targeted, Free-standing Inserts and International, Digital Media & Services - the company offers supreme reach and scale to more than 15,000 advertisers. The company employs nearly 7,000 associates in 28 states and eight countries. Valassis companies include Valassis Direct Mail Inc., Valassis Canada, Promotion Watch, Valassis Relationship Marketing Systems LLC, NCH Marketing Services Inc. and Brand.net. Valassis Communications has a market cap of $1.07 billion.


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