Here Is Why Everyday Health (EVDY) Is A Strong Buy Now

On Sep 2, Zacks Investment Research raised Everyday Health Inc. (NYSE:EVDY) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The upgrade was primarily driven by the company’s strong second-quarter 2016 results, which got the estimate revisions racing up. Everyday Health reported loss of 27 cents per share, which was narrower than the Zacks Consensus Estimate of a loss 33 cents.

Everyday Health provides digital health marketing and communications solutions, primarily to pharmaceutical companies. In the reported quarter, total revenues increased 5% to $57.7 million, primarily driven by 7% increase in advertising and sponsorship revenues.

Key Factors

Everyday Health benefited from improving consumer advertising business trends in the first half of 2016. More importantly, consumer pharmaceutical advertising experienced double-digit growth. The company anticipates the positive trend to continue for the rest of the year, which will definitely drive its top-line growth.

Moreover, Everyday Health’s growing association with professional brands is a positive signal. The company stated that the number of professional brands it has worked with had increased 40% in the first half.

Further, the company’s latest hospital customer relation management (CRM) solution (Tea Leaves Health platform, which was acquired in 2015) is expected to boost revenue growth. A top hospital group recently selected the CRM solution in a three-year contract which is estimated to generate $14 million in SaaS revenues over the period of the contract.

The CRM platform is currently being used by eight of the top 15 hospital in the U.S. Management stated that the company is on track to end the year with at least $17 million of annualized contract value, up from under $6 million when it acquired Tea Leaves.

Additionally, we believe, Everyday Health’s “What to Expect” – the pregnancy and parenting unit - will be a key growth driver, going forward. In the first half of 2016, netizen visits to the website were up 32% and registrations increased over 27% on a year-over-year basis.

We note that increasing market penetration opens up revenue opportunities in terms of greater access to advertisement expenses being made by pharmaceutical, retail and large consumer packaged goods companies.

Moreover, growing association with new pharmaceutical brands is significantly a positive step. The company has already signed up 93 new pharmaceutical brands in 2016, which will drive its revenues from professional services.

Estimate Revision

The Zacks Consensus Estimates for 2016 has narrowed down to a loss 43 cents from a loss of 71 cents over the last 30 days. For 2017, the estimate is currently pegged at a profit of 22 cents, significantly up from a loss of 3 cents over the same time frame.

Other Stocks to Consider

One may also consider other favorably ranked stocks like Facebook (NASDAQ:FB) , LinkedIn (NYSE:LNKD) and Yirendai Ltd. (NYSE:YRD) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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