NEW YORK (AP) -- Shares of AOL Inc. advanced on Wednesday after a Barclays analyst upgraded the Internet company, predicting "modest revenue growth" as it continues to turn its business around.
THE SPARK: Barclays analyst Anthony DiClemente upgraded AOL to "Overweight" from "Equal Weight" and raised his target price to $44 from $38. He said that while AOL's subscription business — the dial-up Internet service that's steadily losing paying members — is declining, AOL has been able to grow a key operating metric in 2012. The company's earnings before interest, taxes, depreciation and amortization, or EBITDA, increased last year, DiClemente noted, because AOL reduced expenses and made its other businesses more profitable.
The analyst thinks this can continue if AOL shuts down its local site Patch — or brings it to break-even profit margins by 2012, and if it continues to cut overhead expenses. DiClemente also predicted "sustainable" revenue growth of slightly more than 3 percent per year.
BACKGROUND: AOL recently reported stronger-than-expected results for the final quarter of 2012, including its first revenue growth in eight years, signaling that company may have finally turned a corner. Strength in its advertising business helped offset falling revenue from its fading dial-up service.
SHARE ACTION: AOL's stock rose $3.35, or 9.3 percent, to $39.52 in afternoon trading. The stock has traded in a 52-week range of $18.12 and $43.93 and it is up about a third in 2013, compared with a 9.5 percent increase for the Standard & Poor's 500 index.