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• XO Group Inc (NYSE: XOXO) shares have appreciated 13.18 percent in the last three months, from $14.19 on October 2, 2015.

• Axiom’s Victor Anthony has initiated coverage of the company with a Buy rating and price target of $21.

• The company’s new management has been able to successfully turn around XO Group’s legacy Internet business.

According to the Axiom report, “Investors are now greeted with an advertising and commerce marketplace that is returning to double-digit organic top-line growth, expanding margins, growing free cash flow per-share at a healthy clip, and returning capital to shareholders via share repurchases.”

Analyst Victor Anthony believes that the company has multiple drivers, including a $130 billion TAM, a fast-growing and developing 100 percent gross margin transactional marketplace, and growth opportunity in local and national online advertising.

Anthony also noted that a survey of local vendors revealed high customer satisfaction, as well as ad pricing leverage. Close to 90 percent of the surveyed vendors were satisfied with advertising on The Knot, which implied high customer retention.

In addition, more than 70 percent of the vendors were willing to adsorb a 5 percent price hike, which implied pricing leverage in the vendor marketplace.

“Coming off an investment cycle and exit of underperforming assets, we see 390bps of Adj. EBITDA margin expansion from 2015 to 2017 and FCF per-share growing at a 20 percent CAGR from 2015 to 2018,” Anthony stated.

The stock is one of Axiom’s Top SMID Cap Ideas for 2016.

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