Wall Street Sees The Light
Wall Street analysts, who tend to move as a herd, have been suddenly boosting target prices at a feverish clip. Here’s a quick sampling:
Merrill Lynch’s target goes from $35 to $40, boosting 2014 and 2015 forward EPS and revenue targets by 20% to 40%.
UBS AG (ADR) (NYSE:UBS)‘ price target was raised from $30 to $36, suggesting that “there will be upward pressure on advertiser budgets allocated to Facebook Inc (NASDAQ:FB) as the company improves its ability to demonstrate the (returns on investment) achievable on its platform.”
Topeka Capital Markets sees shares rising to $40, thanks to “several well defined catalysts over the next two years including monetizing Instagram, launch of auto-play video ads … and a bigger push into e-commerce.”
Jefferies’ target price goes from $32 to $37, predicting that Facebook Inc (NASDAQ:FB) will finish the year on a very strong note as current initiatives ripen.
JMP Securities upgraded its rating from “market perform” to “market outperform.” Its new $38 price target is based on the belief that “Facebook has discovered the formula to begin significantly extracting value from its 1.16 billion global users.”
Cantor Fitzgerald bumped its price target from $35 to $40, as “the valuation remains compelling for a company growing revenues at 40-plus percent and EBITDA margins at 55-plus percent.”
JPMorgan Chase & Co. (NYSE:JPM) has a Street-high $44 price target, suggesting that the just-released second-quarter results “could be thesis-changing for many.”
Why should you care about these analysts’ price target and views? Because Facebook Inc (NASDAQ:FB) is about to become a major topic of conversation among these analysts and their hedge fund clients. Analysts tend to “talk up a name” as long as its current price is a reasonable distance from its target price.
Risks to Consider: There are a few negatives to the Facebook story. First, the games category continues to underwhelm and is becoming a decreasing part of the sales mix. Second, Facebook’s “Graph Search” feature, which was the product of a considerable amount of R&D spending, has not yet become a hit with consumers. And thanks to a rebounding stock price, Facebook Inc (NASDAQ:FB) could soon be hit by a brain drain as valuable employees cash in their stock options and migrate to smaller, pre-public tech companies where other options bounties await.
Action to Take –> Shares of Facebook Inc (NASDAQ:FB) are hitting fresh 52-week highs but remain well below the IPO price. The company burned a lot of bridges with lackluster quarterly results in 2012. Yet it’s increasingly clear that management now understands the need to deliver solid financial metrics both now and in the future. That said, it’s the probable growth in 2014 and 2015 that should really have you focused on this stock. This week’s sharp run for the stock reflects the fresh set of quarterly results — but the next leg of share price appreciation will come from even better quarters yet to come.
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This article was originally written by David Sterman and posted on StreetAuthority.
