By Lisa Thompson

Zacks SCR has initiated coverage of SMTP with a Buy rating and a $16 twelve-month price target.

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SMTP is an experienced, profitably growing SaaS company in the $2 billion email marketing industry.

With acquisitions and internal growth, the company may be able to double revenues to $13m and increase non-GAAP EPS to $0.39.

Its acquisitions of SharpSpring and GraphicMail make it much more competitive against larger players, and lower the company’s tax rate significantly.

The company’s 8.3% dividend yield makes it attractive to both growth and yield investors and increases investor’s ROI as well as limiting the stock’s downside risk.

Based on comps, the stock could be worth $16 in the next twelve months.

SMTP provides an email delivery service for large volume emailers that improves deliverability of opt-in emails. It is cloud-based SaaS and available in over 130 countries.

The company pays an extremely high divided that is currently $0.48 per share (8.3% dividend yield) that it has no plans of reducing or eliminating in the near future. In the past five years, the company has achieved revenue CAGR of 48%.

In the past year the company outlined a strategy to aggressively rejuvenate growth through the acquisition of companies providing service offerings complementary to its existing business. In the email and sales automation market there are multiple companies that have shown significantly higher growth than SMTP, so the company decided to broaden its market scope and try to capture some of this business.

As a first step, it recruited new management including a new CEO and CFO with M&A and marketing expertise.
Then it raised a war chest by selling shares for $11.5 million in January and uplisted to the NASDAQ.
This new team then systematically reviewed the landscape to find companies that were a good addition to SMTP’s product offering, and also available at a reasonable valuation.

It recently announced the acquisitions of SharpSpring, which sells marketing automation like that provided by Marketo, and GraphicMail, which has a email creation and tracking front-end service much like MailChimp. SharpSpring closed August 15, 2014, and GraphicMail is expected to close before year-end. These two companies will broaden the company’s offerings, increase its total addressable market, increase its geographic reach, and make it more competitive against larger vendors. With these acquisitions, we expect the company’s revenues to double next year.

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