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Analyst Watch: AOL, Network Solutions top analysts&#039 wish list

Internet stocks still have a long way to go to get back to their 52-week highs set in April, but a flock of Internet analysts are taking the easy road by recommending AOL and Network Solutions.

The pace figures to pick up even more next week when the likes of America Online Inc. (NYSE: AOL), Inc. (Nasdaq: AMZN) and Excite@Home Corp. (Nasdaq: ATHM) report their quarterly results.

Adding fuel to the fire, leading market mavens such as Goldman Sachs' Abby Joseph Cohen are reworking their estimates for the Dow and S&P 500. Could Dow 13,000 be out of the question by year's end. How about the Nasdaq at 3,500?

With both major indices trading at or near their all-time highs, look for leading Internet stocks to drag the technology sector through the rest of the bumpy summer trading season.

Consolidation is still the name of the game. In the Internet world unless you have a truly superior business model or technological edge, you're either building your business as bait for a leader or playing for second place.

Analysts never unanimously agree on anything, but they're all strongly behind AOL.

And why not?

With more than 18 million subscribers and an e-commerce program that's the envy of the industry, how could you not like AOL? Thirty-six of the 37 analysts following the stock rate it either a "buy" or "strong buy."

The best part for AOL shareholders is that even when competitors contemplate giving away free Internet service or packaging the service with a PC maker, it usually only helps AOL.

"To date AOL has observed no attenuation of its subscriber growth domestically as a result of competitive free ISP service," said Phil Leigh, an analyst at Raymond James. "AOL's financial results are not yet threatened by the industry's experimentation with free Internet service, for two primary reasons: Since the programs increase the awareness of the Internet among the public at large, AOL tends to benefit.

Leigh also said AOL's e-commerce engine has gained nearly unstoppable momentum.

First Call consensus predicts it will earn 11 cents a share in its fourth quarter and 33 cents a share in the fiscal year.

"We believe AOL is positioned to take a big jump up across metrics as its service becomes used across multiple locations and new platforms, allowing a significant increase in revenues and earnings over the next few years," said BancBoston Robertson Stephens' Keith Benjamin. "Over the next few months, we expect investors to wake up to the power of AOL's position. As such, we believe now is the time to grow more aggressive again on accumulating the stock."

Last quarter, AOL beat analysts' estimates, earning $117 million, or 11 cents a share, on sales of $1.3 billion.

The stock hit a 52-week high of 175 ? in April and closed out the week trading around 120.

Networks Solutions still owns domain registry market

Network Solutions investors were a bit unnerved when the government opened up the lucrative business of registering Internet domain names.

That'll happen when you see your monopoly in a huge Internet business go down the drain in a single pen stroke.

But three months after the Internet Corporation for Assigned Names and Numbers welcomed five new participants to the Internet name game, only three registrars made it happen.

With the extended "testbed" period ending this week, only, Melbourne IT and CORE have managed to get their act together.

Meanwhile, Network Solutions continues to register thousands of URLs each day.

Next week, ICANN and Network Solutions will join the Department of Commerce and several other political and industry entities during a Congressional Committee hearing. No one is quite sure what this means yet, but at least one analyst thinks it's good news for Network Solutions.

"The testbed period may be extended again and we believe there continues to be controversy over ICANN's governance and the political landscape is still unresolved," said Jim Preissler, an analyst at PaineWebber in a research report. "Due to Network Solutions established market leader status, the stock could warrant a P/E as high as 200x on our 2000 EPS estimate, which produces a target price of $195."

Network Solutions shares were trading around $84 a share Friday.

It will report its second quarter earnings next week with analysts predicting a profit of 16 cents a share.

The stock peaked at 153 3/4 before its 2-for-1 split in March.

All 10 analysts covering the stock maintain either a "buy" or "strong buy" recommendation.