Data collator infoUSA (NASDAQ:IUSA) badly missed analyst estimates for its Q2 2006 earnings last quarter, reporting less than half the profits Wall Street was expecting to see. When the Q3 numbers come in Friday morning, will we find the missing pennies there?

What analysts say:

  • Buy, sell, or waffle? Bad info: infoUSA lost half of its analyst following since we last checked in on it. Good info: "Half" equals just one analyst. The one who remains rates infoUSA a hold.
  • Revenues and profits. No info: The remaining analyst doesn't say what he thinks the firm earned in Q3. Somehow, though, without knowing what the company will sell, he feels able to predict the firm will grow profits 13% to $0.17 per share. We'll see.

What management says:
The big news at infoUSA is that it's finally found itself a company to acquire, after being robbed of its hoped-for prize, Digital Impact, by rival Acxiom (NASDAQ:ACXM) last year. infoUSA's new target: Opinion Research Corporation (NASDAQ:ORCI).

In a press release issued back in August, infoUSA announced that it will acquire its much smaller rival for a premium of -- better sit down for this -- 94% to its pre-announcement trading price.

What management does:
Operating and net margins have been slipping at infoUSA for the past two quarters, even as the rolling gross margin has continued its upward march. The reason for this is pretty clear: Operating costs are running amok. Over the last six months, as infoUSA's sales grew just 7%, the firm permitted selling, general, and administrative expenses to gallop far ahead at 22%. Result: Today, infoUSA is no more profitable than it was a year ago.

Margins %

3/05

6/05

9/05

12/05

3/06

6/06

Gross

70.8

71.0

71.7

71.8

72.4

73.0

Op.

14.6

14.2

15.3

16.5

16.0

15.1

Net

6.3

6.8

7.5

8.2

7.8

6.8
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Did you sit down when I told you to? Are you still sitting? Good, because you may find this even harder to believe than the premium infoUSA is paying: This looks like a good deal for the acquirer.

Consider: Factoring debt and cash into the equation, infoUSA currently sports an enterprise value of approximately $660 million -- nearly five times the value of Opinion Research, if the deal goes through in Q4 at the offered price. But infoUSA's $400 million in annual turnover is just twice the size of Opinion Research's sales. With ratios like these, you don't even need the back of an envelope to conclude that at the offered price, infoUSA is paying just 40% of the price that its own revenue stream fetches to capture Opinion Research's revenues.

Granted, over the last 12 months, Opinion Research has proven incapable of transforming its revenues into profits, whereas infoUSA is quite adept in this regard (its problem is with sharing those profits with its outside shareholders). So it's only logical that the market should value Opinion Research's revenue stream less richly. But in the hands of a skilled extractor of profits like infoUSA, I expect that Opinion Research's sales will prove plenty lucrative, and plenty rewarding to shareholders.

Assuming, of course, that management doesn't get too greedy.

Why all the innuendo? What's our beef with infoUSA? Heavens! Where to start? How about with:

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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy has all the information you need.