Talking Numbers

Why the hack attack won’t matter to eBay

Hack attack won't matter to eBay

EBay wants its users to change their passwords after a massive hack attack. But, the stock is still a buy for one portfolio manager.

About 145 million user records were said to have been accessed by the hackers three months ago, making it the second-largest such attack in history. The company said in a statement:

"The database, which was compromised between late February and early March, included eBay customers' name, encrypted password, email address, physical address, phone number and date of birth. However, the database did not contain financial information or other confidential personal information."

If there was one piece of financial information investors wish hackers would take away from eBay, it would be the performance of the stock over the past 18 months.

Sure, there was some excitement in the stock earlier in the year as Carl Icahn began rattling his sabre at the board of directors over the fate of its PayPal division. However, eBay shares have traded in a tight range just several dollars wide since November 2012.

EBay shares may have outperformed archrival Amazon since the start of the year, but it's a case of who's worse off, not who's better off; Amazon shares are off by 23 percent but eBay shares are still down 6 percent in 2014. And, when it comes to its business, Amazon's sales growth over the past five years has been 31.4 percent versus eBay's more modest 13.8 percent.

However, portfolio manager Chad Morganlander of Stifel's Washington Crossing Advisors thinks eBay is a value stock worth buying and has a $65 price target on shares.

"Earnings are starting to catch up with the valuations," said Morganlander, who owns shares in the company in his own portfolio. He likes that the stock is trading around 16 times its 2014 earnings net of cash. "This is a value stock in the Internet space and we would be buyers of it," he added.

However, Morganlander has some concerns with eBay's decelerating revenue and contracting margins. "But, if you have conservative estimates, which we do as value investors, we still think that this stock has some get-up-and-go," Morganlander said. "Investors will be handsomely rewarded if they hold on to this stock through the volatility over three to five years."

Steven Pytlar, chief equity strategist at Prime Executions, is also optimistic on eBay's stock.

"The charts set up a good buying opportunity right here," Pytlar said. "However, we are thinking that it can continue to chop around in a range for a while."

Pytlar reasons that eBay's stock's recent failure to break through its 2004 highs will mean the stock won't make a major move for the time being. "When you see a stock retest a high from 10 years ago [and] fail to move through it," Pytlar explains, "that's usually a good technical signal that you're going to get a sideways choppy phase or a corrective phase."

That accounts for eBay's shares' movement – or lack thereof – over the past 18 months, according to Pytlar. "Even before it tested that old high, it was chopping around between about $50 and $57," he said. "But, each time it tested $50, you [saw] a lot of buying demand."

With eBay shares around $51 now, Pytlar likes the stocks.

"The risk/reward is good at about $50 because if it goes below that, that's your red flag to get out," Pytlar said. "And, the upside from here really is a bounce back to the upside of that channel."

"We like stocks that have been consolidating for a long time at the top of a big rally," Pytlar added. "They can resolve higher to new highs eventually."

To see the full discussion on eBay, with Morganlander on the fundamentals and Pytlar on the technicals, watch the above video.

[Disclosures: Stifel expects to receive or intends to seek compensation for investment banking services from eBay Inc. in the next 3 months. Stifel makes a market in the securities of eBay Inc. Morganlander owns eBay Inc. in his personal portfolio.]

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