Facebook rally leaves analysts far behind

Comment on this story
br facebook1 Reuters Analysts covering Facebook are struggling to keep up with the soaring stock price as its mobile revenue rises. Photo: Reuters

San Francisco - Wall Street analysts are racing to keep up with Facebook’s stock rally.

Shares of the social network have jumped 32 percent this year, compared with a 1.6 percent gain for the Standard & Poor’s 500 (S&P 500) index. The surge has left the 49 analysts who cover Facebook in a bind: while 38 of them recommend the company with the equivalent of a buy rating, 21 of them have share price targets below where Facebook is trading.

That translates to an average 12-month price target of $72.46 (R779.10) for Facebook, less than 1 percent more than its price of $72.03 on Monday. With the stock rising faster than anticipated, the price targets suggest that analysts on average see little upside to the stock. That may force some of the bulls to adjust projections, with two analysts lifting their price forecasts on Monday.

“Facebook stock has just ripped past expectations,” said Richard Greenfield, an analyst at BTIG in New York, who advised buying the shares in October last year with a $68 target over the next year. At the time, Facebook was trading at $49.

Facebook spokesman Tucker Bounds declined to comment.

Facebook’s stock surge underscores how the company’s prospects have improved after its rocky stock market debut in May 2012. Chief executive Mark Zuckerberg weathered a 50 percent drop in the stock price in the months after its initial public offering at $38, as investors questioned whether Facebook could come up with a mobile strategy with users increasingly accessing the site from smartphones and tablets.

Since then, Facebook has pushed into mobile advertising. In January, it reported quarterly results that beat estimates, with more than half of ad revenue coming from mobile devices. Last month Facebook agreed to buy WhatsApp for as much as $19 billion in cash and stock, betting on the mobile-messaging start-up’s large international user base to accelerate growth.

While it is not unheard of for a company to trade above its average analyst price target – 74 companies in the S&P 500 did so as of Monday – Facebook stands out because of how analysts almost all agree their clients should buy the stock.

The company gets 4.6 out of five in recommendation consensus. That puts it in the top 5 percent of the S&P 500. None of the analysts covering Facebook rates it a sell.

Facebook’s rally has already left it trading at 122 times trailing 12-month earnings, making it more expensive than 98 percent of all companies in the S&P 500.

For some analysts, Facebook’s stock rise is not enough to justify a higher price target.

“You need to have a reason to adjust valuations beyond just because the stock has moved,” said Robert W Baird analyst Colin Sebastian, who has a buy rating on the stock and changed his price target five weeks ago to $65 from $54.

Still, he said Facebook had plenty of wind in its sails. The company was experiencing “positive momentum in their mobile and advertising segments”, Sebastian wrote on Monday. – Bloomberg


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.