Neustar (NSR) 4Q12 Earnings

Neustar reported financial results for their fiscal year 2012 fourth quarter on February 5^th after the close. Revenue for the quarter increased 23% to 214.2 million. For the full year, revenue increased 34% to 831.4 million - driven by the full year impact of TARGUSinfo and double digit increases in both Carrier and Enterprise Services. Management expects revenues to range from $895 to $915 million in 2013 representing a 8% - 10% increase over 2012. Diluted EPS for the quarter increased 47% to $0.75 while full year diluted EPS increased 43% to $3.04. EPS is expected to range from $3.28 to $3.43 in 2013.

Neustar continues to position for a successful NPAC contract renewal. While their non-NPAC business continues to grow, a successful NPAC contract renewal is crucial to the Neustar story. President and CEO Lisa Hook remains “…confident that our capabilities and demonstrated track record of innovation and outstanding service in this complex ecosystem position us a very strong competitor for the next contract that begins July 1, 2015”. To understand the breadth of the NPAC contract - it contains over 600 million telephone numbers, which is over 70% of all active phone numbers in the U.S. In 2012 Neustar processed over 1.2 million transactions, routed over 4 billion phone calls and 7 billion text messages; every phone call and every text message in North America every day. Neustar has been the NPAC administrator for the past 15 years building the world’s largest and most complex local number portability system.

The company repurchased 2.7 million shares in 2012 for $98 million in cash. Cash and investments increased by $74.7 million, to 343.9 million in 4Q12.

Shares of Neustar closed at $46.53, ~2% above our price target. Neustar has a strong and growing presence in the telecommunications, data analytics, Internet e-commerce, and media and advertising industry's which will allow for significant growth opportunities going forward. We remain bullish on the Neustar story seeing the next leg in shares coming from a successful NPAC renewal and continued strong financial performance. Our model calls for a revised price target of $54.41, representing an additional 16.9% upside.