Facebook Analysts See Near-Term Upside in Stock

Facebook Logo Mark Zuckerberg Inset - H 2012

Facebook Logo Mark Zuckerberg Inset - H 2012

Shares of the Mark Zuckerberg-led social networking giant have trended higher in recent weeks after a much-criticized IPO last May.

Some Wall Street analysts have come out predicting near-term upside in Facebook's stock, which could start off 2013 with better momentum than the social network stock saw after a much-maligned IPO last year.

In fact, shares of the company, led by CEO Mark Zuckerberg, are up more than 25 percent since new stock flooded the market in mid-November after the latest expiration of a lock-up period of stock issued in the IPO.

Just in time for the new year, Stifel, Nicolaus analyst Jordan Rohan raised his target price on Facebook shares by $5 to $31 and reiterated his "buy" rating.
He cited "three key reasons to add to positions in Facebook now."

Rohan argued that continued selling of the stock, which hurt it in 2012, was likely over. "We believe the trading pattern will shift from fear of massive selling to excitement over forced buying of shares by index funds when Facebook is added to the [broad-based] S&P 500 [stock index]," he said. Such an addition could come around May, Facebook's anniversary as a public company. "But anticipation of its inclusion could be a catalyst," Rohan said.

Better monetization, particularly on mobile devices, is a second key driver for the stock, Rohan suggested. And third, the analyst raised his financial estimates and predicted others may follow suit. "The trajectory of earnings growth is somewhat controllable for Facebook right now, making it likely that earnings stay ahead of the expectations of a still-tentative base of investors," he said.

A lack of new economic worries in the euro zone "should be accretive to Facebook's earnings outlook," Rohan explained in this context. "Facebook has most of its cost structure in the U.S., while it generates more than half of its revenues outside the U.S. We have not accounted for the rebound in the euro against the U.S. dollar in our estimate changes...but believe a few percentage points of upside are possible due to currency."

Pivotal Research Group analyst Brian Wieser also has a "buy" rating on Facebook's stock, with a $30 target price. "Core to our view is the observation that Facebook's business is becoming better understood by many investors as one of the two dominant players in web-based/ digital advertising," he said late last year.

"The company's early efforts in communicating its story and managing expectations were weak," he argued. "However, Facebook had a strong third quarter and showed favorable momentum monetizing mobile ad inventory."

His conclusion: "While the stock will likely require another [earnings] quarter of outperformance versus expectations to move much above current prices, we believe a support level is mostly in place, implying limited downside."

Cowen analyst John Blackledge on Wednesday started coverage of Facebook with only a "neutral" rating. But he too argued that "near-term, downside appears limited given mobile advertising momentum."

His concerns are more longer-term given his earnings estimates starting with 2014 are well below Wall Street consensus levels, Blackledge highlighted.

Facebook kicked off 2013 with a 5.2 percent gain to close at $28 on Wednesday. Its high since its stock market debut is $45, but it has traded as low as $17.55, a price reached in early September.

The stock's IPO was $38, but its price fell amid technical glitches that delayed its trading start and a lack of a big first-day pop. Stock sales by insiders also caused some investors to turn more bearish on Facebook last year, according to analysts.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai