On Monday, JPMorgan (NYSE:JPM) analysts upgraded LegalZoom.com Inc (NASDAQ: NASDAQ:LZ) stock rating from Underweight to Overweight and increased the price target from $8.00 to $9.00.
The upgrade was based on a positive outlook for the company entering 2025, citing two main factors that contribute to this perspective.
The first factor influencing the upgrade is the recent improvement in business formations data. LegalZoom, which provides online legal solutions, could benefit from the positive trend observed in November and December 2024, with business formation statistics showing resilience on a year-over-year (Y/Y) and month-over-month (M/M) basis. This data suggests a potential reversal of the steep declines seen in most of 2024.
The second reason for the optimistic view is the expectation that LegalZoom's management will provide a 2025 adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) guidance that exceeds analysts' estimates by at least 5%. JPMorgan's analysis indicates that the impact of cost savings from a reduction in force (RIF) implemented in 2024 has not been fully accounted for in investor expectations. The firm forecasts that the 2025 adjusted EBITDA could be $15 million higher year-over-year, compared to the consensus estimate of an $8 million increase.
JPMorgan's commentary highlighted the anticipation of LegalZoom's management guiding profitability forecasts for 2025 ahead of market expectations during the fourth-quarter 2024 earnings release, which is expected to occur in February 2025. This anticipated guidance has led to placing LegalZoom on Positive Catalyst Watch.
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