• Shutterfly, Inc. (NASDAQ: SFLY) shares have lost 15 percent in the past month, and are trading close to the lower end of their 52-week range of $36.39 - $51.69.

• Axiom Capital’s Victor Anthony reiterated a Buy rating and a price target of $52 for the company.

• Anthony said the company is poised for margin expansion and FCF growth.

Following a meeting with Shutterfly’s CFO Brian Regan, analyst Victor Anthony said that he was “even more convinced” that the company is on track for margin expansion in 2016. Shutterfly was likely to achieve above-consensus growth in FCF over the next couple of years, and drive increasing returns on investment capital.

Shutterfly expects $12M-$14M of cost reduction next year, with a narrowing of nonrecurring restructuring costs related to the platform consolidation, proxy costs, facility closures and consolidations, and brand shutdowns. As the business grows, working capital benefits should continue and capex growth should moderate.

“With the investment cycle largely behind them, we see margins expanding back into the 20% range in 2016,” Anthony wrote. Adjusted EBITDA margin is expected to expand by more than 190 basis points to 20.1 percent, with 25 percent EBITDA growth, and free cash flow per share is estimated to grow 30 percent y/y to $3.24 in 2016.

“Our numbers are conservative and there is likely to be upside to our estimates given that SFLY is committed to driving FCF per share growth at a 50% clip over the next two years,” the Axiom Capital report stated.

Like Google Inc (NASDAQ: GOOGL) and Amazon.com, Inc. (NASDAQ: AMZN), Shutterfly is “moving past its investment cycle,” Anthony said. He added that the company’s shares had underperformed the peer group on concerns surrounding organic growth rates, “even though the core SFLY brand continues to grow in the double digits.”

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