Lifelock: Zacks’ Bull of the Day Play

Lifelock (LOCKSnapshot Report) with all the college football games coming up, some gamblers will be looking for a “lock” or a play that is as close to a sure thing as you can get. My personal “lock” for that is taking Ohio State and the points. LOCK is a Zacks Rank #2 (Buy) and while it has nothing to do with gambling or college football it is a great play on personal security.

Hack Attacks

An idea that might be lost in the recent Sony hack was that a list of employees and their social security numbers was published by the hackers. This exposes those emplpoyees in a big way and should lead to the company picking up the tab for Lifelock services.

The number of companies that were hacked last year was pretty big, but the number of consumers that were exposed is even bigger. Companies like Home Depot and Target noted that millions of their customers credit cards were compromised, but what if the same thing happens to a bank?

Company Description

LifeLock provides identity theft protection services for consumers as well as fraud and risk solutions for enterprises in the United States. It protects consumer subscribers through monitoring identity-related events, such as new account openings and credit-related applications. LifeLock was founded in 2005 and is headquartered in Tempe, Arizona.

Earnings History

The Zacks Research System (ZRS) gives me all the data that I use to review stocks. It has data on 9 earnings reports for LOCK, and in all of them, the company has beaten the Zacks Consensus Estimate. Most were by a penny or maybe two, but the most recent beat is the one that catches my eye. The company reported earnings of $0.12 when the Zacks Consensus Estimate called for $0.08. That four cent beat translates into a 50% positive earnings surprise. The company also beat on the topline in each of the last four quarters as well.

Estimates

For most of the year, the Zacks Consensus Estimate for 2014 and 2015 was heading the wrong way. That all changed with the most recent beat in October, when the Zacks Consensus Estimate for 2014 moved from $0.19 up to $0.25. At the same time, the 2015 Zacks Consensus Estimate jumped from $0.31 to $0.45. Those are some big moves for a four cent beat, and that suggests that the company has basically reached a tipping point. Every penny of earnings could not start meaning more and more down the road as they reach critical mass in terms of customers and revenue.

Valuation

Right now, the valuation for LOCK is rather rich. The trailing PE of 75x is just about triple the industry average, which is quite a bit. The forward PE of 69x is also crazy high right now compared to the 23x industry average. The premium continues to be seen in the price to book, with a 5x multiple compared to a 4.5x industry average and the price to sales multiple is also sharply higher than the industry average at 3.8x compared to 2.9x.

The reason for the premium valuation is that LOCK is growing the topline at 28% this year and 20% next year vs 1% this and 7% next year for the industry average. Earnings growth is slated to be 80% next year, more than 5 times as high as the 14.5% industry average. So this is going to be a big growth story.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #2 (Buy) we see that estimates are moving higher despite its limited public history.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

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