MercadoLibre: Zacks’ Bear of the Day Play

Earnings estimates have fallen sharply for MercadoLibre (MELI) following a big earnings miss in late February. The declines in consensus estimates for both this year and next have been significant enough to send the stock to a Zacks Rank #5 (Strong Sell).

Additionally, shares of MercadoLibre doesn’t exactly look attractively priced here with a Zacks Value Style Score of ‘F’.

MercadoLibre operates an e-commerce ecosystem in Latin America that provides buyers and sellers an online trading environment. It operates in 13 countries including Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela.

Fourth Quarter Results

MercadoLibre reported its fourth quarter results on February 25. Earnings per share came in at $0.76, missing the Zacks Consensus Estimate of $0.83.

Net revenues increased 20% year-over-year to $161.4 million. Gross merchandise volume plunged 16% year-over-year to $1.797 billion, but this was primarily driven by foreign currency headwinds.

Meanwhile, total operating expenses increased from 34.4% to 42.4% of net revenues. This was due in part by an increase in marketing expenses. Operating income declined 13% year-over-year as a result of the operating margin falling from 38.7% to 28.0% of net revenues.

Estimates Falling

Following the Q4 report, analysts lowered their earnings estimates for both fiscal 2015 and 2016. This sent the stock to a Zacks Rank #5 (Strong Sell).

As you can see, the 2015 Zacks Consensus Estimate has fallen from $3.32 to $2.77 over the last 60 days. And the 2016 consensus has dropped from $4.33 to $3.82 over the same period.

That clearly is not a favorable trend.

Lofty Valuation

Shares of MercadoLibre do not look like much of a value here. In fact, the Zacks Style Score grades MELI an ‘F’ for Value. It’s easy to see why. Shares trade at a lofty 40x 12-month forward earnings, and its enterprise value to cash flow ratio is a staggering 57x.

The Bottom Line

With negative earnings momentum and lofty valuation, investors should consider looking elsewhere for now.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.


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