GSI Commerce's Shares Look Attractive

I’ve been trying to figure out what is behind the 22% price jump in GSI Commerce (GSIC) shares yesterday on no news and ok volumes. Word is that management is presenting to Morgan Stanley investors today and shorts may be clearing out in anticipation of positive news about the quarter.

I do not own the shares now but have owned it in the past and have shorted it a few times. The company has a great business model but it only generates EPS profits in the fourth quarters of the year, thus investors have only one quarter of positive news to look forward to.

My own model has the company generating $395mn in revenues, $65mn in EBITDA and $0.62 in pro-forma EPS in 4Q08, compared to consensus revs, EBITDA, and EPS of $385mn, $67mn, and $0.62, respectively. So I am roughly in-line with consensus on EBITDA and EPS. I also have them generating about $100mn in free cash flow in the quarter, their highest level ever.

The stock is extremely cheap on an EBITDA basis, trading at just 7x ’09 EBITDA, with EBITDA growing over 20% percent in 2009, so I may consider jumping back in for a quick trade. I have the company generating $120 million in EBITDA in 2010, so just applying the current trading multiple today to that figure and adjusting for net debt gives me a value of $15 per share, which is a 65% return.

The key will be how the company’s partners are performing given that retail activity is quite soft.